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South Africa’s current account deficit widens in second quarter

South Africa’s current account deficit widens in second quarter

South Africa’s current account deficit widened to 6.2% of Gross Domestic Product (GDP) in the second quarter of 2014.

In its September Quarterly Bulletin, the South African Reserve Bank said structural impediments, together with prolonged industrial action and a moderation in global demand and declining commodity prices, have dented the country’s export performance in the second quarter.

“As a result of the simultaneous deterioration in the trade and services, income and current transfer account of the balance of payments, the current account deficit widened substantially from 4.5 % of GDP in the first quarter of 2014 to 6.2% in the second quarter,” said the Reserve Bank on Tuesday.

The deficit came against a marked consensus of 5.5% by analysts.  

“The value of merchandise imports also contracted over the period but to a lesser extent, with the result that the deficit on the trade account of the balance of payments widened from R75bn in the first quarter of 2014 to R101bn in the second quarter,” noted the bulletin.

Having increased for five consecutive quarters, the volume of merchandise exports (excluding gold) contracted by 4.4% in the second quarter of 2014 due to lower production in the platinum mining sector following prolonged labour strike action from late January 2014 until late June.

Apart from the decrease in platinum group metal exports, notable declines were also registered in the quantities of ferro-manganese and coal exports.

“In addition to lower supply, export volumes were also weighed down by lower demand from trading partner countries in Asia, more in particular China, India, Thailand and Malaysia,” said the Reserve Bank.

Nedbank economists had expected the deficit to come in at 5.8%. According to the bulletin, the deficit on the services and net transfer payments account rose to R121bn from R86bn.

“The current account deficit should narrow as exports improve following the normalisation of operations in both the mining and manufacturing sectors. These numbers confirm that overall domestic demand remains lacklustre,” said the economists.

Meanwhile, the bulletin also showed that growth in real gross domestic expenditure slowed from an annualised rate of 2.7% in the first quarter of 2014 to 1.8 % in the second quarter.

“The slower growth resulted from a deceleration in real final demand; a moderation in real final consumption expenditure by households and real gross fixed capital formation more than neutralised a slower de-accumulation in real inventory holdings and an acceleration in final consumption expenditure by general government over the period,” said the report.

Following an increase of 1.7% in the first quarter of 2014, growth in the real disposable income of households moderated to 1.3% in the second quarter.

According to economists, the economy is expected to improve in the second half of the year off a low base and also supported by some improvement in global demand.

“However, growth in domestic demand is likely to remain subdued as households will remain cautious, given pressure on disposable income, rising debt service costs and the weak job market, while general government will strive to reduce the fiscal deficit and growth in the public sector wage bill over the medium term.

“Private firms will still be wary of expanding capacity aggressively given the weak economic environment and other structural problems,” said Nedbank.


 

Source: SAnews.gov.za

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