South Africa’s Q1 C/A gap surprisingly shrinks to 4.8% of GDP despite doubling of trade shortfall

By bne IntelliNews June 23, 2015

South Africa’s current account gap unexpectedly narrowed to 4.8% of GDP in the first quarter from 5.1% of GDP in the preceding quarter, as a twofold increase in the trade shortfall was more than offset by smaller deficit on the services, income and current transfer account, data from the South African Reserve Bank’s (SARB’s) quarterly bulletin showed. Economists had expected the current account deficit to widen to 5.2% of GDP, according to a median consensus forecast from a Business Day survey of 10 economists.

The narrowing of the current account gap is a piece of good news for Africa's most developed economy, which has been troubled by electricity shortages and other structural imbalances. The high current account deficit makes the country vulnerable to shifts in global investor sentiment, which affects the foreign exchange rate and hence the stubbornly high inflation rate.

In nominal terms (seasonally adjusted and annualised), the current account deficit fell to ZAR189bn ($15.6bn) in Q1 from ZAR198bn in Q4. The deficit was financed by inflows of portfolio and other investments as direct investment registered a net outflow over the period.

The shortfall on the services, income and current transfer account shrank 28% q/q to ZAR117bn in Q1, reflecting mainly a surge in gross dividend receipts, originating largely from direct investor relationships, coupled with lower gross dividend payments to foreign investors. As a percentage of GDP, the gap narrowed to 3.0% from 4.2% in Q4.

The trade gap ballooned 103% q/q to ZAR71bn, as the value of merchandise exports fell 2.3% q/q to ZAR937bn, while merchandise imports grew 1.0% q/q to ZAR1.07trn.

“Weaker global output growth alongside a moderation in domestic economic activity in the first quarter of 2015 slowed growth in the volume of merchandise exports from South Africa. This was reinforced by a further decline in export prices,” SARB said.

The physical quantity of South Africa’s merchandise exports (excluding gold) increased 3.4% q/q in Q1, slowing from a 5.3% growth in Q4, as a surge in the export volume of vehicles and transport equipment and a pick-up in agricultural exports was partly offset by a decline in chemical exports.

Meanwhile, the average US dollar price of South African produced non-gold commodities was down 9.1% in Q1, declining for the eighth consecutive quarter. Factoring in the local currency depreciation, the rand price of merchandise exports dropped 5.6% after a 2.2% decline in Q4.

In volume terms, imports advanced 3.6% in Q1 following a 1.4% growth in Q4, reflecting mainly higher imports of mining and manufactured goods. Relative to real gross domestic expenditure, real merchandise imports rose to 26.3% in Q1 from 25.6% in Q4. The decline in the international price of crude oil together with subdued inflation in most of South Africa’s trading partners led to a 2.5% decrease in the rand price of imports.

ZAR bn, seasonally adjusted and annualised Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q1 2015, q/q Q1 2015, y/y
Merchandise exports 937 959 931 909 966 -2.3% -3.0%
Net gold exports 59 62 63 64 62 -4.8% -4.8%
Merchandise imports -1 067 -1 056 -1 071 -1 064 -1 099 1.0% -2.9%
Trade balance -71 -35 -77 -90 -72 102.9% -1.4%
Net service, income and currenttransfer payments -117 -163 -145 -142 -101 -28.2% 15.8%
CURRENT ACCOUNT BALANCE -189 -198 -223 -232 -173 -4.5% 9.2%
-- as % of GDP -4.8% -5.1% -5.8% -6.2% -4.6% - -
Source: SARB              

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