Deficit of current account narrows

SA’s current-account deficit narrowed more than expected in the third quarter as the trade surplus widened, reflecting the sharper moderation in imports versus exports.

The current-account deficit, which measures the gap between what SA earns from exports and pays for imports, narrowed to R19.3bn in the three months ended September from R185.2bn in the second quarter.

As the percentage of GDP, the account deficit narrowed to 0.3% from 2.7%, the Reserve Bank said in a statement on Thursday.

The trade surplus widened to R189.1bn from R22.2bn as the value of merchandise imports dropped more than exports.

The data reflected the moderation in imported manufactured products such as solar panels and other energy-related equipment. Businesses and households have been stocking up on equipment to mitigate against higher stages of loadshedding.

The decrease in the value of imports of goods and services reflected lower volumes, while the decrease in exports of goods and services reflected lower prices, the central bank data showed.

“Subdued demand domestically continues to weigh on import activity, while the fragile global manufacturing environment as well as structural domestic challenges, continue to hinder export potential,” Investec economist Lara Hodes said in a note.

As a relatively small and open economy, SA is predisposed to the global environment, which remains uncertain. While the US economy has exhibited signs of relative resilience despite a series of increases in interest rates, the post-Covid-19 recovery in China remains patchy.

China is especially sensitive because it’s SA’s biggest trading partner, followed by the US.

“The improvement in the current account in the third quarter will likely be short-lived, given unfavourable domestic and global economic conditions. Trade performance has been quite volatile during the year, and the latest indications are that it deteriorated in the fourth quarter,” Nedbank economists said in a note.

“Globally, the pass-through of tighter global monetary policy and lower commodity prices suppressed demand. Locally, export volumes have been contained by the ongoing energy crisis and the worsening port and rail inefficiencies. The upturn in gold prices in recent weeks will boost net gold exports, but the still-depressed volumes will limit the upside.”

The rand perked up nearly 1% to R18.78/$ by early afternoon trade, trimming the year-to-date losses to 10%. The better-thanexpected account shortfall is positive for the rand to the extent it reduces demand for foreign currency to pay for imports.