SA’s current account deficit narrowed to R70.8bn in the third quarter, from the previous quarter’s R75.3bn, as an increase in service exports offset a wider deficit in the income account, according to data released by the SA Reserve Bank on Thursday.
As a share of GDP, the current account deficit was largely unchanged from the second quarter’s revised reading at 1%, but this was below the Bloomberg consensus forecast of 1.7%.
The lower-than-expected current account deficit would have meant less pressure on the rand exchange rate, especially at a time when capital flows into SA were showing some recovery.
The uptick in services exports is also a good sign given this includes items such as tourism. However, the low deficit also reflects an economy that continued to underperform during the quarter, with weak investments and exports.
This is the tenth consecutive quarter in which SA has recorded a current account deficit, but the latest reading was the smallest since the third quarter of last year.
The trade account surplus narrowed slightly from R179.5bn in the second quarter to R177bn, representing 2.4% of GDP, which is also in line with the revised second quarter reading.
The value of both exports and imports of goods and services fell, reflecting both lower volumes and prices. However, the narrower trade surplus came because the value of goods exports decreased more than that of merchandise imports, according to the Reserve Bank.
Goldman Sachs economist Andrew Matheny said the group expected a modest erosion of the trade surplus in the coming quarters, on the expected cyclical recovery of the economy.
Investec economist Lara Hodes echoed this forecast, saying: “going forward, we could see a further narrowing of the trade surplus as manufacturing activity globally remained subdued at the start of the fourth quarter”.
The results of JPMorgan’s Global Manufacturing PMI survey for October show the global manufacturing downturn continued, with new export orders decreasing for the fifth consecutive month, said Hodes.
“Moreover, while there has been an improvement on the logistics front domestically, inefficiencies and deficient infrastructure continue to weigh on export potential.”
A modest deterioration in the income balance saw the income account deficit widen from R117bn in the previous quarter to R129bn, but this was offset by narrower deficits on the services and current transfer accounts, according to the Bank.
As a result, the overall deficit on the services, income and current transfer account also narrowed for the second consecutive quarter, recorded at R247.8bn from R254.7bn previously. This represents 3.4% of GDP, from 3.5% in the second quarter.
Additionally, SA’s terms of trade improved slightly in the third quarter, “as [the] rand price of imported goods and services decreased more than that of exports”, said the Bank.
After the latest data, Matheny said Goldman Sachs now forecasts a “modest narrowing” of the current account deficit from 1.6% of GDP last year to 1.3% of GDP in 2024, “given the weaker performance of the economy this year-to-date” — particularly the sharp slowdown in final domestic demand.
“We maintain our forecast for a widening of the current account deficit to about 2% of GDP in 2025, as growth picks up and as the trade surplus narrows,” he said.
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