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Johannesburg – Despite the latest data showing that the current account deficit widened, the balance has still improved relative to previous figures, said an economist.
The South African Reserve Bank’s (SARB) latest quarterly bulletin revealed that the current account deficit widened from 1.7% in the previous quarter to 2.1%. In monetary terms, the deficit increased from R76bn to R92bn.
READ: Current account deficit widens to 2.1%
This was worse than market expectations, said Stanlib chief economist Kevin Lings. However, the deficit for 2016 which was at 3.3% of GDP was still better relative to the deficit of 4.4% for 2015 and 5.3% for 2015.
“For 2017, we expect the current account deficit to narrow to around 2.5% of GDP,” he said.
Investec economist Kamilla Kaplan said the deficit is expected to decline to 2.8% of GDP, on the back of soft domestic consumption and the investment demand environment.
The deficit was mainly driven by the shortfall in services, income and the current transfer account, further the trade surplus remained unchanged at 1.3% of GDP.
Improved trade
South Africa’s trade deficit has narrowed from a peak of 2.9% of GDP in the third quarter of 2013, and has reported regular surpluses recently, said Lings. Higher commodity prices and improved global economic activity are expected to improve export values in 2017/18, he said.
“But this improvement is still expected to be relatively modest given the current lack of traction in SA manufactured exports.” Manufactured exports shrunk for the third successive quarter, the report said.
Imports in turn only increased slightly. Trends show imports have moderated, mainly reflecting the weakening of the South African economy and the drop in private sector fixed investment, said Lings. “Given the current slump in the domestic economy, we still expect import demand to remain stagnant over the coming year,” he said.
This moderation in imports, and an increase in exports could lead to a “sustained improvement” in the trade surplus, and the current account deficit over the next year, he explained.
This will ease pressure on the rand and then soothe some concerns of ratings agencies, he added.
Trade balance as a percentage of GDP
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