SA current-account deficit at seven-year low

South Africa’s current-account gap narrowed to a seven-year-low in the fourth quarter of 2010, while expenditure slowed, partly due to a moderation in household spending, the Reserve Bank said on Tuesday.

Monde Mnyande, Reserve bank Chief Economist and adviser to Governor Gill Marcus, said the recovery in Africa’s biggest economy was continuing and Japan’s nuclear disaster would have limited impact.

The Reserve Bank said the current account deficit narrowed to 0,6% of gross domestic product (GDP), from a slightly revised 3,1% in the third quarter. Analysts polled by Reuters expected a shortfall of 2,55% to GDP.

“The smaller current account deficit in the second half of 2010 reflects the much-reduced savings investment gap, indicative of the subdued pace of fixed capital formation and the resulting lower levels of imports, particularly of capital and intermediate goods,” the central bank said.

South Africa’s rand was little-changed after the data but yields on the benchmark 2015 bond narrowed to 7,855% from 7,895.

Imports fell by 2,2% in volume terms and 3,4% in value.

“The contraction in import volumes in the final quarter fo 2010 could largely be attributed to a decline in intermediate imports — more in particular crude oil imports — alongside a decline in the physical quantity of manufactured goods imported,” the bank said.

Partly due to lower imports, the surplus on the trade account increased to R86-billion rand compared to R30,3-billion rand in the third quarter.

Capital inflows slowed
On the financial account, the surplus was also much lower at 1.7 billion rand, from 29.5 billion rand in the third quarter as capital inflows slowed in the quarter.

“Financial and economic conditions in the United States and in other advanced economies improved somewhat in the fourth quarter of 2010,” the central bank said.

“These developments, alongside concerns about overheating and build-up of inflationary pressures in some emerging market countries, caused a slowdown in capital flows into these economies.”

Growth in spending slowed to 1,2% in the fourth quarter of 2010 from 6,2% in the previous quarter.

“This moderation in total expenditure partly reflected slower growth in real final consumption expenditure by the household sector,” the bank said.

Household spending growth slowed to an annualised 5,1% in the fourth quarter, from 5,7% in the third quarter. For 2010, household spending was up 4,4% after a 2% contraction in 2009.

The Reserve Bank said household debt as a ratio of disposable income receded to 77,6% from 78,7% in the third quarter and debt service cost decreased due to low interst rates.

The bank has cut the repo rate by 650 basis points to 5,5% since December 2008. It is expected to leave rates unchanged on Thursday. — Reuters


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