Current-account gap widens, household spending up

South Africa’s current-account deficit widened in the third quarter, partly due to a fall in receipts after the boost from the Soccer World Cup, while lower interest rates helped lift household spending.

The current-account shortfall was at 3% of GDP from 2,5% in the second quarter, the South African Reserve Bank said on Thursday. It compared to a forecast of 3,2% in a Reuters poll of analysts.

In its December quarterly bulletin, the Reserve Bank said South Africa’s trade surplus with the rest of the world increased significantly in the third quarter as terms of trade improved and volumes of exports and imports increased.

But this was counterbalanced by a widening in the deficit on the income, services and current transfer account, partly because receipts from foreign tourists fell after the end of the World Cup, hosted by South Africa from June to July.

“The net result of these two offsetting trends was a slightly wider deficit on the current account of the balance of payments in the third quarter,” the bank said.


The gap was covered by portfolio inflows, most notably into the bond market as large amounts of capital flowed into South Africa and other emerging economies.

Portfolio flows have seen the rand appreciate by around 28% against the dollar since the start of 2009.

Lower interest rates
The Reserve Bank said spending in Africa’s biggest economy accelerated in the third quarter as the financial position of households continued to improve, partly due to lower interest rates. Growth in gross domestic expenditure quickened to 5,8% on a seasonally adjusted and annualised basis from 1,6%.

Demand was higher for services and non-durable goods in particular, although this was offset by a decline in outlays on fuel and power.

Growth in household spending accelerated to a seasonally adjusted and annualised 5,9% in the third quarter, compared with 4,9% previously, a slight upward revision.

The ratio of household debt to disposable income increased to 78,5% in the third quarter, from 78,2% in the second.

“The cumulative effects of the easing of the monetary policy stance and the concomitant decline in debt-service cost bode well for households’ confidence levels and expenditure going forward,” the central bank said.

The Bank has reduced interest rates by a cumulative 650 basis points to 5,5% since December 2008 to help boost economic growth. — Reuters

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