Current account deficit shock for SA

2012-09-11 16:59

Johannesburg -  South Africa's current account recorded its largest deficit in nearly four years in the second quarter of 2012 as exports fell because of subdued external demand that is likely to hit manufacturing throughout the rest of the year.

The Reserve Bank also said labour unrest in the mining sector - in particular, fallout from the police shooting of 34 striking miners at a platinum mine last month - might cause economic growth to slump in the third quarter. A 30% rise in mining output propped up the economy in the second quarter.

In its latest Quarterly Bulletin, released on Tuesday, the bank said the current account gap widened to R200bn or 6.4% of GDP from 4.9% in the first quarter, while state spending on wages pushed gross domestic expenditure to 4.7%.

Economists had expected a deficit of only 4.7% because of record portfolio flows into South Africa's domestic debt market ahead of its inclusion in the prestigious Citi World Government Bond Index (WGBI) on October 1.

Bond yields have hit a string of record lows since the WGBI inclusion was announced in April, with index-tracking investors forced to increase their holdings of South African debt.

Economists said these flows could not fund the deficit forever, suggesting the rand was vulnerable if global appetite for emerging market assets switched.

"This is an unsustainable current account deficit," said Kevin Lings, chief economist at Stanlib.

"What is bailing us out is our inclusion in the Global Bond Index, which has resulted in the massive inflows into our bond market. We will still end up with a record inflow into the bond market and that is what is helping us to finance this."

The rand eased after the data, hitting R8.2225/$ at 11:15 from R8.21 moments before the release.

Pressure on factories
Separately, data showed a recovery in manufacturing output to a 10-month high in July, although economists said they still expected the sector, which contributes 15% to gross domestic product, to moderate in the coming months.

Manufacturing output grew 5.8% year-on-year in volume terms, broadly in line with expectations after a rise of just 0.9% in June.

"The outlook for the rest of the year remains relatively bleak," said Nedbank economist Busisiwe Radebe.

"Recession in Europe, a subdued US economy and slower growth in China and other major emerging markets will weigh on the sector, undermining production, inventories and capital expenditure by the major export-orientated industries."

The central bank surprised investors in July by reducing rates for the first time in 20 months, putting the repo rate in Africa's biggest economy at a 40-year low of 5%.

However, a jump in household and government spending in the second quarter caused some economists to wonder whether this decision would be reversed shortly.

"When you look at the driver of it, it is very clearly household and government debt which is expanding at a time when South Africa's production is under massive pressure," said George Glynos, managing director at ETM.

"It raises questions about the wisdom of having cut rates and raises the prospect of rand and price volatility."

The bank also said overall third quarter output might drop against a surprisingly strong showing in the previous three months by the volatile mining sector, which accounts for 6% of production.

Mining grew by 31.2% from a 16.8% contraction in the first quarter, helping push GDP growth to 3.2%, but a wildcat strike and shut-down at Lonmin's Marikana mine over the last month may reverse this.

"The interpretation of GDP has to look at the base effect of mining, and that the non-primary sector of the economy has slowed down. The boost we got from mining may come to haunt us in the next quarter," said Rashad Cassim, the bank's head of research.

The bank cut its 2012 GDP forecast in July to 2.7% from 2.9%, while the finance minister has said he will cut his own forecast to below 2.7% in October.

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  • larry.piggott1 - 2012-09-11 17:14

    With the caliber of Government we have, what do we expect? The shock is that it did not come out earlier.

      chaplinncharlie - 2012-09-11 17:39

      that is what Corruption does to a Country... Don't worry it's just starting...

      Willie - 2012-09-11 17:42

      Spot on --- we need independent varification of this figures chances are they rigged

      jacques.otto.50 - 2012-09-11 17:49

      DOnt worry the ANC has signed up with Bricks so soon more imports from China and Brazil is on its way. Our export will reduce due to demand and our mining industry will collapse. We will soon see the lighst put of but we will vote for the ANC by candle light wont we. Haha what a joke and pathetic. I blame each an every South African for allowing such a poor govemerment into power. Please put this artical to Jacob Zuma. The minister of land affairs or even the minister of foreign afairs and they will not even know what a trade defecit is

      demi.davidson.18 - 2012-09-12 08:20

      Agree. With reports of BILLIONS having gone missing/being mis-spent, it is no suprise. What is shocking that government has been ALLOWED to RAPE THE FINANCIAL COFFERS WITH IMPUNITY.

  • christelle.james.7 - 2012-09-11 17:26

    We do NOT need investment, we do NOT need foreign capital. Why is this an issue?? And low and behold, with all the uprising going on at the moment, it will decline even more. I hate to say the word, but I just need to...........IDIOTS!!!!!

  • armand.horn.58 - 2012-09-11 17:36

    "We're on a road to nowhere!"

      colin.dovey - 2012-09-11 18:27

      What about the road to ruin?

      vdwjasper - 2012-09-12 16:14

      As strikes go, there is something very off about this one. I have got a very, very bad feeling about this. It needs to be sorted out quickly. The entire matter is already being spinned and pinned (somehow) on us whites.

  • desertratbkf - 2012-09-11 17:53


      ike.jakson - 2012-09-12 00:27

      Yes Good Sir! But the question arises: "How do we do it?"

  • Lethabo - 2012-09-11 17:56

    i am not surprised at all what can s.a achieve with this kind of leaders?

  • alf.pop - 2012-09-11 17:56

    Please clarify the "subdued demand". Is that in general or focussing on South African products because of low production and unreliable supply sources due to strikes, unrest, etc.? A few months ago we were still ok, because of our BRICS membership!? Has that now hit a brick wall?

  • hein.huyser - 2012-09-11 23:31

    Somebody, anybody, get this article to our favourite son, Malema, and pat him and all his folowers on the back for a job well done. Then go to government, and fire the whole rotten lot of them No more anc thank you.

      alf.pop - 2012-09-12 07:57

      But don't forget to pat them with a sjambok!

  • Vince.York - 2012-09-12 00:50

    Financiers playing MORE very dangerous games with the hard earned money and asset base of SA AGAIN?

  • Peter - 2012-09-12 08:31

    This is only the beginning. This country's going down the communist pathway rapidly. Divide and conquer. Leave the crumbs for the minions while the elite sip champagne and are escorted around in blue light brigades. Read the Marx and Engels Manifesto and understand where we are headed.

  • andy.rossell - 2012-09-12 09:42

    What can you expect when most of the Corrupt ANC government have little education and have suppresed the economy with BEE.I also note with interest that companies that dont adhere to the employment equity act could be fined 10 percent of their annual turnover.There are going to be a lot of insolvent companies and job losses.

  • Joubs1957 - 2012-09-12 13:09

    Another "Zim" in the making here!

  • Joubs1957 - 2012-09-12 13:12

    I wonder who can recall Clem Suntner`s "High road and Low road speech? I wonder where do we find oursleves right now in this country?

      alan.gernet - 2012-09-12 15:06

      off the beaten track

  • titus.ramapuputla - 2012-09-12 16:14

    we need to come up with a strategy to make other sectors of the economy to be productive.We cannot depend only on one commodity,minerals for our Gross Domestic Product growth.We need to work towards a well diverified economy.Ntle ga moo re tlo sokola.

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