South Africa’s current account deficit narrowed to 7% of gross domestic product in the first quarter as lower oil imports offset a fall in mine exports to narrow the trade deficit, the central bank said on Thursday.
The shortfall compared with a 7,8% deficit in the fourth quarter of 2006 and 5,7% in the third quarter.
In its quarterly bulletin, the Reserve Bank said the deficit on South Africa’s trade balance, the main component of the current account, fell to R50,9-billion in the first three months of the year from R65,6-billion in the previous quarter.
”A substantial decline in crude oil imports more than compensated for a decrease in mining exports in the first quarter of 2007,” the central bank said.
”While the improvement in the trade deficit was partly countered by a further widening of the deficit on the country’s services and income account … the current account deficit nevertheless shrank from R143-billion in the fourth quarter of 2006 to R131-billion in the first quarter of 2007.”
Reserve Bank Governor Tito Mboweni has however warned that the deficit on the current account is expected to remain large for the next three years due to expected machinery and equipment likely to be imported to feed a multibillion-dollar state infrastructure programme.
The Treasury has forecast a shortfall of between 5% and 6% of GDP until 2009.
The rand currency fell almost 10% against the US dollar during 2006, as the central bank warned of risks posed by the current account gap.
The latest shortfall figure should surprise some economists, who had seen it narrowing more substantially to between 6% and 6,5% of gross domestic product.
On Thursday the central bank said the value of merchandise imports decreased by 4% in the first quarter while the value of exports contracted by 1%.
Import volumes decreased by 3% while export volumes also declined by 3%, mainly as challenges facing South Africa’s mining sector, including strikes and transport logistical problems, saw mineral exports ease.
”These setbacks were, however, partly offset by an increase in the volume of manufactured exports,” the Reserve Bank said.
The negative balance on the trade and service account widened to R80,1-billion in the fourth quarter from R77,4-billion previously on increased net income payments to non-resident investors.
”As before, the deficit on the current account of the balance of payments was comfortably financed by net financial inflows,” the central bank said, citing mostly foreign portfolio buying of South African shares. – Reuters