South Africa’s current account plunged further into deficit in the third quarter of 2007 as both oil-import costs and payments to foreign investors surged, but household spending eased due to higher interest rates.
The central bank said in its latest quarterly bulletin the shortfall on the current account swelled to a record R162,6-billion, or 8,1% of gross domestic product.
The percentage gap was the largest since the first quarter of 1982, and increased from an unrevised 6,5%.
”Import prices were bolstered by the further surge in international crude oil prices, while considerably higher dividend payments to non-resident investors contributed to a widening of the deficit,” it said.
The ailing current account has weighed on Africa’s biggest economy, keeping up pressure for higher interest rates — the central bank’s lending rate is up 400 basis points since June last year at 11% — and makes the economy heavily dependent on strong capital inflows.
Heavy state spending to upgrade infrastructure is expected to keep the current account deep in the red for at least the next three years.
The South African Reserve Bank said the trade deficit rose to R52,1-billion from R31,4-billion in the second quarter, partly due to more manufactured goods imports and higher oil prices.
Investor payments
Dividends and income payments to foreign investors jumped, lifting net service payments by 19% to R110,5-billion. ”Dividend payments to non-resident investors … rose by about 28% in the third quarter of 2007,” the bank said.
But the shortfall was still more than covered by capital inflows, allowing for a further increase in reserves.
The central bank said R58,2-billion came into the country in the third quarter, up from R47,9-billion previously.
Portfolio flows remained the key source of funding, although these declined to R33,7-billion from R42-billion during a period of global market turmoil, while ”other investment” — mainly foreign loans — increased sharply.
The bulletin also showed gross domestic spending rebounded, but household expenditure eased slightly as consumers felt some of the impact of higher interest rates. Stronger government spending growth boosted gross expenditure to an annualised 5,75% from 2,75% in the second quarter, while household consumption showed a marked slowdown in spending on semi-durable goods, with growth cooling to an annualised 4,5% from 5%.
Despite higher rates, household debt as a percentage of disposable income reached a new peak of 77,5%, pushing up debt service costs to 10,25%.
The Reserve Bank last week announced a 50 basis point rate rise to try to tame inflation, but said there were signs consumers were responding to higher rates, raising speculation it may not raise again on January 31.
”Higher interest payments and moderate growth in property income hampered growth in real disposable income of households in the third quarter of 2007, and contributed to the moderation in overall household consumption expenditure growth,” it said on Tuesday. — Reuters