Inflows related to the Soccer World Cup helped narrow South Africa’s current-account deficit to a six-year low in the second quarter, but households remained reluctant to spend due to job and debt worries, data showed.
The deficit shrank to 2,5% of GDP from a 4,6% gap in the first quarter, the South African Reserve Bank’s (SARB) September quarterly bulletin showed on Wednesday, easily beating forecasts of 3,2% from analysts in a Reuters poll.
The rand firmed after the data to hit a two-and-a-half year high of 7,0225 against the dollar.
Asked what measures the bank would take to deal with the strong rand, SARB Governor Gill Marcus said it was not simple and even some developed economies were grappling with currency intervention.
“The rand’s impact on manufacturing … and exports is something that receives a lot of attention all the time. But it’s another thing to identify a workable solution,” Marcus said.
The central bank also said it would continue to accumulate reserves with the help of the National Treasury, despite posting a loss of R1,05-billion in the year ended March.
The bank’s quarterly bulletin showed a surplus on the trade account helped trim the current account deficit to its lowest levels since the first quarter of 2004, along with inflows related to increased number of foreign visitors during the month-long World Cup that started in June.
Spending by tourists during the event helped trim the deficit on the services, income and current transfer account to R80,1-billion from R103,2-billion in the first quarter.
“It’s clear that the services balance received some boost from the World Cup. [But] this was a one-off and will not recur,” said Razia Khan, head of Africa research at Standard Chartered.
The swing in trade to a second-quarter surplus of R13,2-billion after a R12,9-billion in the first “was largely a feature of the sluggish demand in South Africa, even as the rest of the world recovered more strongly”, she added.
Spending
Growth in local spending slowed to an annualised 2,3% from 12,1% in the first quarter, as households showed reluctance to spend and borrow money.
The numbers were in line with data showing GDP growth eased to 3,2% in the second quarter from 4,6% in the first, after the country exited its first recession in almost two decades in the third quarter of 2009.
The central bank said the ratio of household debt to disposable income edged lower to 78,2% from 78,7% in the first quarter, “consistent with the slow pace of credit extended to households”.
On Wednesday, the central bank said growth in household spending slowed to a seasonally adjusted and annualised 4,8% from 5,7% in the first quarter.
Household spending growth is expected to remain weak as the economy has shed more than a million jobs since the beginning of 2009, leaving consumers more inclined to hoard any savings.
“The moderation in [household expenditure] resulted from a further contraction in expenditure on services alongside subdued spending on semi-durable goods, together accounting for more than 50% of total household spending,” the central bank said.
The pace of investment in the economy edged up slightly to 0,8% from 0,2% in the previous quarter, as a recovery in private business investment offset a slowdown in investment from public corporations as some projects related to the Soccer World Cup came to an end. — Reuters