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Current account deficit to widen

South Africa's trade balance swung into deficit again in January after a big surplus in December. That doesn’t augur well for the current account balance, which is the trade balance less net payments for services such as freight, interest, dividends, travel and insurance. However, we shouldn’t read too much into one month’s trade figures, as the numbers are notoriously erratic. Nevertheless, the current account deficit is likely to widen this year.

TRADE IN DEFICIT In January this year, SA’s trade balance recorded a deficit of R4,9bn against market expectations of a slightly smaller deficit of R2,3bn. In December 2010 the trade balance was in surplus to the tune of a whopping R10,3bn. The 12-month moving average of the trade balance is still in surplus. During January, exports fell substantially while imports rose significantly. Machinery and equipment imports jumped by R1,8bn.

EXPORTS DOWN In January exports fell by a disappointing 17% month-on-month while imports rose by a significant 14%. The fall-off in exports – which amounted to R9,2bn during the month – was mainly due to a decrease in mineral exports (coal, down R2,5bn), lower precious metal exports (down R2,95bn) and reduced vehicle exports (down R2,23bn). Those declines were partially offset by a R750m increase in metal exports.

DEFICIT WIDENS The current account balance figures are released every quarter in the Reserve Bank’s Quarterly Bulletin. The last figure (for third quarter 2010) was a deficit of 3% of gross domestic product from only 2,5% in the second quarter. The waning of Soccer World Cup activities during the third quarter contributed to a contraction in travel receipts from overseas tourists.

BIG SERVICES SHORTFALL The deficit on the services account of the current account is large – more than 4% of gross domestic product. That shows how much the trade surplus helped to rein in the overall current account deficit, which came in at 3% of GDP. The trade balance isn’t expected to help so much this year, as exports are likely to battle, while imports will perform strongly.
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