Current account deficit narrows to 3.1%

Pretoria – South Africa’s current account deficit narrowed to 3.1% of gross domestic product (GDP) in the second quarter of this year.

“The deficit on the current account of the balance of payments narrowed significantly to 3.1% of GDP in the second quarter of 2016,” said the South African Reserve Bank (SARB).

The bank released its September Quarterly Bulletin on Tuesday.

The 3.1% current account deficit comes after a revised deficit of 5.3% in the first quarter of 2016. Market expectation was for the current account deficit to fall to 3.6%.

“This smaller shortfall on the current account was financed through net portfolio and direct investment inflows, while other investment registered a net outflow,” said the central bank.

According to the bulletin, the country’s trade account switched to a R33 billion surplus on a seasonally adjusted basis from a R48 billion deficit in the first quarter.

Nedbank economists have welcomed the current account deficit.

“The better-than-expected current account deficit is encouraging, indicating that the current account deficit for the year as a whole will narrow as the weaker rand dampens imports, especially for consumer goods.

“On the export side, the weaker rand should boost volumes but the upside will probably be contained by soft global demand, the commodity price slump, rising domestic production costs and infrastructural constraints,” said Nedbank economists.

The bulletin also showed that growth in real disposable income edged higher from an annualised rate of 0.4% in the first quarter of 2016 to 0.7% in the second quarter.

However, households continued to incur debt in the second quarter of 2016. Since quarter-to-quarter growth in nominal disposable income outpaced concomitant growth in household debt, the ratio of household debt to disposable income decreased from 75.7% in the first quarter of 2016 to 75.1% in the second quarter.

The economists said the central bank’s Monetary Policy Committee (MPC) is likely to focus on the upside risk to inflation when it meets next week.

“The MPC is expected to focus more on the upside risk to inflation emanating from the rand’s sharp slide in recent weeks and the threat of even further weakness in the months ahead given the combination of increased global risk aversion and the expected rise in US interest rates.

“We still believe that there is a chance of another 25 basis points hike early in 2017,” said the economists.

The MPC will announce its decision on the repo rate next Thursday.

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