SA’s current account “surprised” in the first quarter, narrowing by more than expectations on the back of strong exports, reflecting a wider trade surplus as the value of exports accelerated at a faster pace than that of imports.
The SA Reserve Bank data released on Thursday showed the first quarter current account deficit narrowed to R66.2bn, equal to 1% of GDP, from a revised shortfall of R155bn, or 2.3% of GDP, the previous quarter.
Overall the improvement was primarily due to a rise in the merchandise trade surplus to 1.5% of GDP in the first quarter from 0.5% in quarter four, led by a rebound in exports after Transnet’s operations normalised from the interruptions in late last year.
The Bank data shows that merchandise exports expanded by 5.2% on a quarterly basis in the first quarter, the most since the same period in 2022, driven by an increase in both export volumes and values, which were up 3.5% from a 3.5% contraction and 1.7% from a negative 2.5%, respectively.
Net gold exports accelerated by a strong 33% quarter on quarter from 8.8% in the last quarter of 2022, reflecting the higher gold price since the start of 2023.
Merchandise imports moderated to 3% in the first quarter from 3.5% in the previous quarter. The country’s terms of trade including gold improved following three consecutive quarters of deterioration. Data shows that the ratio was up 4.7% during the quarter, reflecting the increase in export prices while import prices declined.
But while the outturn was better than the Thomson Reuters consensus of a 2.7% current account deficit, economists expect the current account balance to deteriorate even more going forward as trade conditions worsen as a result of falling global and domestic demand.
Absa economist Sello Sekele said from a global perspective SA’s terms of trade have continued to worsen.
“We believe that various headwinds will result in some widening in the current account deficit,” Sekele said. “Our rand-denominated export commodity price index for SA is down 4.6% so far in quarter two, and is down 12.5% since the start of the year.”
He added that locally, persistent infrastructure bottlenecks such as electricity supply, rail and ports will remain binding constraints on export volume growth. Against this, we forecast a current account deficit of 2.3% of GDP in quarter two, widening further to 2.5% in the fourth quarter.
Oxford Economics said they expect SA to register a current account deficit equal to 2.8% of GDP this year. Jee-A van der Linde, Africa economist at Oxford Economics, said softer macroeconomic fundamentals mean the rand will remain vulnerable to depreciatory pressures in the near term.
“Moreover, the domestic economy will likely be more dependent on foreign funding at a time of heightened geopolitical uncertainty, which further exposes the country to exogenous shocks and financing risk,” Van der Linde said.
“What’s more, an uncertain global economic environment, tight financial conditions, and a considerably weakened domestic growth outlook, together with elevated government debt levels, ultimately lift risk perceptions of SA, which has seen investors demanding higher compensation for holding local government debt,” he added.
Standard Bank’s head of macroeconomic research, Elna Moolman, said Standard Bank is not adjusting its forecast for a widening of the current account deficit from 0.5% of GDP in 2022 to 1.8% in 2023 and 2.1% in 2024.
Moolman said while in itself, the current account data is rather backward-looking data and is unlikely to have a material bearing on investor sentiment and views, the positive news flow on some of the major risks that investors are currently focused on may, at the margin, support the slightly stronger trend under way in the rand exchange rate.
Nedbank’s Liandra da Silva said while they expect the primary income deficit to narrow as bleak corporate earnings prospects weigh on dividend payments, higher Southern African Customs Union payments should support the secondary income account.
“The ongoing recovery in international travel will continue to bolster service receipts, although upward momentum may be slightly limited by the weakness in the global economy,” she said.
Update: June 8 2023
This article has been updated with new information.
Correction: June 8 2023. The third paragraph of this story, which stated that this was the lowest current account gap since second quarter of 2011, has been removed. The current account was in surplus for much of 2020-2022.
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