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Current account gap steadies

Dec 06 2012 11:05 Reuters
Rand notes

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Pretoria - South Africa's current account deficit held steady in the third quarter of 2012, beating market expectations, as lower-than-expected dividend payments to offshore investors countered an expanding shortfall on the trade account. 

In its latest Quarterly Bulletin, the central bank said on Thursday the current account gap was unchanged at 6.4% of gross domestic product, but had widened to R202.5bn from R200bn. 

The bank said inflows "more than fully covered the shortfall". 

South Africa has attracted record inflows into the bond market this year after inclusion into a prominent government bond index that helped drive yields to record lows. 

South Africa's exports were hit by three months of labour strikes in the mining sector, which hit exports and more than halved economic growth in the third quarter. 

Gross spending slowed in the quarter to 3% from 4.9% in the second quarter mainly because of a slower accumulation of inventory by companies who had to draw down inventories to meet demand as strikes disrupted production. 

Slow growth in household spending also contributed. 

Household debt-to-income steadied at 76% partly because of low interest rates and rising incomes. 

The bank noted the increase in unsecured lending to households. 

"While the general loans and advances component extended to households constitutes only a moderate proportion of total credit extension it continued to record high rates of increase," it said. 

The Reserve Bank reduced the repo rate to four-decade low of 5% in July but has kept rates on hold in its two subsequent meetings as inflation risks have risen. 

Kevin Lings, chief economist at Stanlib said: "It is telling us, overall that South Africa's current account remains under enormous pressure. Our trade numbers are under pressure. 

"It's confirming that imports are quite substantial and we've increased quite dramatically, so we've become more import intensive. 

"We are struggling to export, so the combination is not good. It does suggest the rand is at risk of weakening if we can't attract foreign investment. 

"I wouldn't draw any comfort from the fact that the deficit remained unchanged. It's still very substantial." 

While Isaac Matshego an economist at Nedbank added: "No big surprises there because the huge trade deficit was the culprit in the current account deficit. This means that we will have to keep on attacking foreign capital inflows to finance this current account deficit, otherwise it would have negative implications for the rand and for inflation. 

"Going forward it will be all about capital inflows and how they support the rand. We have to keep one eye on economic policy, which makes the upcoming ANC policy conference very crucial. 

"If we see the rand weakening significantly because of unsatisfactory policies coming out of the policy conference, that would be negative for inflation and that would mean that we could soon start seeing tightening of monetary policy." 

Market reaction 

The rand was at R8.7560 against the dollar at 08:15 GMT from R8.7860 before the data was released at 08:00 GMT. 

The yield on the three-year government bond nudged 1.5 basis points to 5.50% while that for the 14-year issue fell 2 basis points to 7.490% from 7.510%.

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current account deficit  |  sa economy
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