South Africa’s third quarter current account gap expanded slightly more than expected to 4.1% of GDP from 3.1% the quarter before, reflecting a return to deficit of the trade balance and a further increase in net income payments to the rest of the world, the South African Reserve Bank (SARB) said in its latest quarterly bulletin, released on December 8.

Economists had expected the current account deficit to grow to 4.0% of GDP, according to two separate polls made by the Business Day and Reuters.

Although largely expected, the substantial widening of the current account gap is another blow for the country’s already agonising economy, after the Fitch downgrade and the worsened S&P outlook last week. The high current account deficit makes the continent’s Africa's best developed economy vulnerable to shifts in global investor sentiment, which affect the foreign exchange rate and hence inflation and monetary policy. Markets are particularly sensitive in the current situation of prevailing fund outflows from emerging markets in view of the expected US rate hikes.

After recording in Q2 its first foreign trade surplus in 14 quarters, South Africa’s trade balance with the rest of the world returned to deficit last quarter. The value of exports remained largely flat q/q, reflecting a slowdown in export volumes growth following four quarters of firm increases, coupled with further decline in global commodity prices, countered by the depreciation of the rand. Conversely, import volumes advanced in line with the moderate pickup in gross domestic expenditure, which alongside the price-raising effect of the weaker rand pushed up moderately import values.

The value of merchandise exports edged up 0.8% q/q, slowing from a 6.8% q/q growth in Q2, while merchandise imports rose 2.6% q/q after a 0.7% q/q decline, resulting in a trade deficit of ZAR14bn versus a surplus of ZAR14bn in Q2.

The significant deterioration in the trade balance was accompanied by a 9.4% expansion of the shortfall on the services, income and current transfer account, caused mainly by higher net income payments to international investors.