South Africa’s current-account deficit swelled to the biggest in two years in the Q1 as a strong rand weighed on export income
The shortfall on the current account, the broadest measure of trade in goods and services, widened to 4.8 per cent of gross domestic product compared with a 2.9 per cent gap in the three months through December, the South African Reserve Bank said in its Quarterly Bulletin released on Thursday in the capital, Pretoria. That exceeded the 3.9 per cent median estimate in a Bloomberg survey.
The rand’s surge to a three-year high in February following Cyril Ramaphosa’s ascent to the presidency lowered the appeal of South African exports and the value of merchandise shipments dropped by 9.6 per cent, according to the central bank. After seven quarterly surpluses, the trade balance swung to deficit of ZAR 25 billion ($1.8 billion).
The currency has wiped out all gains since, plunging to its weakest level in almost seven months against the dollar this week. The bigger deficit could add to pressure on the rand and while this may push up import prices and the inflation rate, it may also boost export revenue. The National Treasury forecast the current-account gap will shrink to 2.3 per cent of GDP this year.
Africa’s most-industrialised economy relies mainly on foreign investment in stocks and bonds to help fund the shortfall on its current account. These portfolio flows stood at ZAR 89.4 billion in the Q1 and foreign direct investment was ZAR 10.5 billion.