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Well known economist George Glynos sums it up well in his tweet, “it’s a pity South Africa relies on softer oil and weaker consumption to rebalance the books rather than a ramp up in production.” The current account deficit eased to it’s smallest level in four years, 3.1 percent of GDP in the second quarter. But one could always argue that when it comes to the economy, we’ll take any good news. The Rand also strengthened marginally off the back of the release of the data but without the correct fundamentals, a stronger Rand will only weaken exports and re-ignite consumers’ appetite for imports, and reverse the rebalance. Stuck between a rock and a hard place. – Stuart Lowman
Current Acc data today shows a rebalancing under way. Pity we rely on softer oil and weaker consumption rather than ramp up in production
— George Glynos (@George_Glynos) September 15, 2015
By Rene Vollgraaff
(Bloomberg) — South Africa posted its smallest current- account deficit in four years in the second quarter as a weaker rand boosted exports and curbed consumers’ appetite for imports.
The gap on the current account, the broadest measure of trade in goods and services, eased to 3.1 percent of gross domestic product from a revised 4.7 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released on Tuesday in the capital, Pretoria. The median estimate of 18 economists in a Bloomberg survey was for a shortfall of 3.7 percent.
The rand’s 14 percent slump against the dollar this year helped to offset a slide in gold, platinum and other commodity prices, boosting export income and contributing to the nation’s first trade surplus in more than three years. The improvement in the current-account deficit may help to underpin the rand as it faces pressure from declining investor sentiment toward emerging markets and rising U.S. interest rates.
“We’ve had some good trade numbers recently and lower imports should help to bring the deficit down,” Isaac Matshego, an economist at Nedbank Ltd., said by phone from Johannesburg before the data was released.
The trade surplus amounted to 14 billion rand in the second quarter. Exports, excluding gold, surged 6.9 percent to an annualized 1 trillion rand ($74 billion) in the three months through June, while imports fell 0.8 percent to 1.06 trillion rand, according to the report.
South Africa, which relies mainly on foreign investment in stocks and bonds to help fund its current-account deficit, posted an inflow of 54.8 billion rand in portfolio investment in the second quarter. That was up from 39.3 billion rand in the previous three months. Foreign direct investment recorded an inflow of 6.1 billion rand compared with an outflow of 22.2 billion rand in the three months through March.
Foreign receipts were partly undermined by a drop in tourism in the first half of the year, mainly due to the imposition of more stringent visa regulations and a spate of attacks against immigrants, the Reserve Bank said. The services account on the balance of payments, of which tourist income makes up the bulk, dropped by 4.2 percent in the second quarter.
The narrowing in the current-account deficit also reflected the slowdown in Africa’s second-largest economy. Expenditure by consumers, the government and businesses contracted an annualized 7.2 percent in the second quarterly, according to the central bank. Growth in household spending slowed to 1.2 percent from 2.4 percent in the first quarter, while investment spending rose 1 percent from 1.8 percent.
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