Current account deficit widens to 2.1%

Pretoria – South Africa’s current account deficit widened from 1.7% of GDP in the last quarter of 2016 to 2.1% in the first quarter of 2017, according to the South African Reserve Bank (SARB).

The SARB released its quarterly bulletin on Tuesday. The report showed the current account balance of payments widened from R76bn to R92bn during the quarter.

READ: SA current account deficit narrows to 1.7% of GDP

Among the reasons for the widened current account deficit was an unchanged trade surplus, combined with a widened deficit in services, income and current transfer account, explained Iaan Venter, head of the business cycle and labour analysis division research department.

The trade surplus rose from R56bn in the fourth quarter of 2016 to R57bn in the first quarter of 2017. There was also a shortfall in services, income and the current transfer account which widened 13% from R132bn to R149bn.

This was driven by a wider net income deficit mainly due to reduced dividend receipts from abroad, the report explained.

Income receipts declined from R114.1bn in the previous quarter to R83.6bn in the first quarter of 2017, said senior economist Piet Swart. This dividend payment is not seasonal as with JSE-listed companies which follow a fixed dividend policy, he explained.

Senior economist Zirk Jansen added that the dividend receipts have come off a high base recorded in the fourth quarter. But compared to a year ago, the ratio of the deficit to gross domestic product at 3.4% is still less than the medium-term average of 3.7%.  

Unchanged trade

The slight increase in the value of net gold and merchandise exports helped offset the marginal increase in merchandise imports, the report said. Overall merchandise exports fell 0.2% compared to the 3.7% increase in the fourth quarter of 2016.

Although mining exports increased for a second successive quarter, this was not enough to counter the effect of manufactured exports shrinking for a third successive quarter. Manufacturing activity continued to slow despite a recovery in global demand, an improvement in manufacturing purchasing managers' indices and improved consumer confidence in other economies, the report said.

Further, the slightly higher merchandise imports were linked to increased imports of crude and refined oil products. Imports of manufactured goods declined, due to reduced demand for foreign produced products like cellphones.

This decrease outweighed increased values for imports of chemical products and vehicles and transport equipment.

Investment position

South Africa’s financial account received a capital inflow of R37.6bn, compared to an outflow of R8.7bn in the fourth quarter of 2016. Financial account inflows amounted to 3.4% of GDP for the quarter.

Portfolio investment inflows came to R25.9bn for the quarter, compared to the R1.9bn worth of inflows in the previous quarter. The capital inflow reflected the acquisition of R42.1bn of domestic debt by foreign investors as an effect of the search for yield, the report said. 

Direct investment abroad in turn resulted in an outflow of R9.9bn, lower than the outflow of R19.5bn in the previous quarter. South African residents acquired foreign portfolio assets to the value of R18.4bn, whereas in the previous quarter they disposed of R80.5bn of these assets.

South Africa’s international reserves dropped by R12.7bn in the first quarter, compared to an increase of R53.8bn in the previous quarter. Swart explained that this is due to two government international dollar bond issues. 

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