Surplus benefits current account
THE RAND yesterday strengthened nearly 1.5 percent against the dollar as South Africa’s current account deficit narrowed to R108.9 billion in the third quarter from a revised R110.7bn in the previous period.
The narrowed current account deficit was lifted by the trade surplus that continues to grow. As a ration of the gross domestic product (GDP), the current account deficit narrowed from 2.4 percent to 2.3 percent during the same period.
The rand was bid at R13.47 to the greenback at 5pm yesterday from a day low of R13.53.
Gerrit van Rooyen, an analyst at NKC African Economics, said the continued increase in the rand prices of most of South Africa’s major export commodities was positively influencing the South African economy.
“Although the current account deficit narrowed somewhat less than expected in the third quarter, the deficit is notably lower than in the past few years, which is a positive for the country’s credit rating and supportive for the rand exchange rate,” Van Rooyen said. Surplus widened The SA Reserve Bank said South Africa’s trade surplus widened from R64bn in the second quarter to R71bn in third, marking a fourth straight quarterly trade surplus.
The services deficit fell to R 1.5bn from R7.2bn in the first quarter and the current transfers gap shrank to R40.7bn from R43.8bn. Meanwhile, the income deficit widened sharply to R137.7bn from R124.1bn in the first quarter.
When considering the first three quarters of the year, the current account gap fell to R311.1bn from R489.9bn in the same period of 2016. The net inflow of capital on South Africa’s financial account increased from R3.2bn in the second quarter to R17.4bn in the third quarter.
Kamilla Kaplan, an economist at Investec, said she expected the current account deficit to remain well contained between 2 percent and 4 percent of GDP over the coming quarters with weak domestic activity yielding trade surpluses or relatively small trade deficits. “The income component of the current account is only released with the Quarterly Bulletin and has shown an increase in the deficit.” Divergence “The estimation of the income component likely accounted for the divergence between consensus and the actual outcome,” Kaplan said.
The central bank said an increase in agricultural exports in the quarter under review was insufficient to offset the declines in mining and manufacturing exports. Stronger agricultural exports were underpinned by citrus fruit exports, which countered declines in other agricultural products.
John Ashbourne, an Africa economist at Capital Economics, said the bigger picture was that the current account position seemed to have stabilised at a much narrower deficit than in previous years.
“South Africa’s overall current account deficit is driven by the consistently large income account, which is mostly the result of foreign-owned firms repatriating profits from the country,” Ashbourne said.