Mariam Isa
5 September 2008
Johannesburg — SA's current account deficit narrowed in the second quarter of this year as mineral exports climbed, but the respite is likely to prove temporary - keeping the rand under pressure.
The shortfall on the broadest measure of trade in goods and services dived to 7,3% of gross domestic product (GDP) from 8,9% in the first quarter of this year, below consensus forecasts.
Reserve Bank data yesterday also showed that the deficit -- which fell to R164,4bn from a record R194,6bn in the first quarter -- was comfortably covered by a pickup in capital inflows, mainly through foreign buying of government bonds.
Portfolio inflows, which are notoriously volatile, amounted to R27,3bn in the second quarter of this year, after an R19,1bn outflow in the first quarter.
But analysts fear the benign trend may not hold over the rest of this year, even though a sharp fall in global oil prices will provide some respite by helping to curb the cost of imports.
SA's trade gap widened to a near-record R14,3bn in July and demand for imports required for government's R568bn infrastructure spending programme is likely to keep the main trade balance in deficit for a few years.
At the same time, there are concerns that global sentiment will swing against emerging markets like SA, halting the portfolio flows which have funded the current account gap.
"Overall funding looks precarious in our view and there are considerable risks going forward, as the current account deficit continues to expand," said Lehman Brothers emerging market analyst Peter Attard Montalto. "All of this should in turn impact the rand negatively." Attard Montalto believes the current account deficit will widen to more than 10% of GDP in the third quarter and reach 9,1% for the whole of this year, compared with 7,3% last year.
That is well above official forecasts, which predict the shortfall will stick at 7,3% of GDP this year, widening to 7,9% next year and 8% in 2010.
Portfolio inflows, which are notoriously volatile, surged to R27,3bn in the second quarter of this year after a R19,1bn outflow in the first quarter, the Reserve Bank data showed.
Exports surged 20% in value terms in the second quarter of this year, partly due to rising gold and platinum prices, but also spurred by a recovery in mining output after power outages led to a sharp contraction in the first quarter of the year.
Second-quarter imports rose 11,5% , boosted mainly by record prices for oil and goods linked to infrastructure investment.
"We expect the current account deficit to widen again in the third quarter and still see a full-year figure of about 8% of GDP, leaving the rand exposed," Absa Capital economist Monale Ratsoma said. The rand has weakened more than 13% versus the dollar so far this year and is rapidly approaching the key R8/$ level once again.
Read comments. Write your own.
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
Yes VERY VERY temporary.