SA's current-account gap widens in first quarter

The deficit on South Africa’s current account widened more than expected in the first quarter, partly due to problems in the eurozone that curbed exports, the central bank said on Thursday.

The South African Reserve Bank said in its June quarterly bulletin the balance on the current account widened to 4,6% of GDP in the first quarter, compared with a 2,9% shortfall in quarter four, which was a four-and-a-half year low.

The main drag on the current account balance was the trade balance, which swung back into deficit as exports fell.

“Although the recent recovery in global economic activity supported the revival in international trade volumes, somewhat weaker macroeconomic conditions in certain euro member countries impeded export volumes,” the central bank said.

The eurozone is South Africa’s largest trading partner, covering about a third of domestic exports.

SARB chief economist and adviser to the governor, Monde Mnyande, said the current account deficit is expected to deteriorate further to around 4,9% of GDP for 2010, compared with a 4% shortfall in 2009.

The central bank said a stronger rand currency also weighed on exports. The rand’s exchange value firmed by 3,9 percent in the first quarter against a basket of 15 currencies of South Africa’s most important trading partners.

Imports improved slightly as a faster pace of economic growth in the first quarter raised demand.

Further momentum
Economic expansion quickened to 4,6% in the first quarter, after the biggest economy in Africa exited its first recession since 1992 late last year.

“The growth outlook may gain further momentum from the recovery in the manufacturing sector,” Mnyande said, declining to say what the central bank expected from quarter-two gross domestic product figures.

On spending, households helped to lift gross domestic expenditure to 12,1% on an annualised basis compared with 4,9 percent in quarter four, aided partly by lower interest rates, slowing inflation.

The SARB reduced interest rates by a cumulative 550 basis points, starting in December 2008, and inflation is at a four-year low.

Mnyande said “adverse effects related to job losses and high electricity prices could still constrain spending by households”.

State-owned enterprises such as power firm Eskom and logistics company Transnet supported gross fixed capital formation, a trend that Mnyande said should continue in the near term.

Gross fixed capital formation rose 0,2% on an annualised basis in quarter one, after three quarters of decline.

But private sector investment—which makes up two-thirds of total investment—was still falling, although the rate of contraction had eased at -0,7% compared with 2,3% annualised in quarter four.—Reuters