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Current account deficit shrinks in fourth quarter

Fewer strikes and a weak rand help boost exports.

PRETORIA – A boost in exports and slower growth in domestic expenditure helped to narrow South Africa’s current account deficit from 5.8% of gross domestic product (GDP) in the third quarter of 2014, to 5.1% in the fourth quarter, the South African Reserve Bank (Sarb) reported on Tuesday.

The country’s annualised trade deficit narrowed from a revised R77 billion in the third quarter of 2014 to R35 billion in the final quarter of last year. This is significantly down from a deficit of 6.2% of GDP in the second quarter, but not quite as positive as the 4.6% deficit recorded in the first quarter of last year.

Fewer strikes towards the end of the year, a weaker rand and “relatively favourable conditions in some export destinations” contributed to a notable pick up in South Africa’s export volumes, according to the Sarb.

“Pronounced increases were registered in the exports of especially platinum group metals and mineral products, particularly coal and iron ore,” the Sarb states in its quarterly review issued on Tuesday, noting that coal exports were “largely destined for India, Spain, Morocco and the United Kingdom”.

The Richards Bay coal terminal boasted its highest ever coal exports in 2014 at 71.3 million tonnes. The terminal’s annual capacity is 91 million tonnes.

Manufactured exports also rose in the fourth quarter of last year, continuing their upward movement from the previous quarter. While agricultural exports contracted in the fourth quarter, higher exports of machinery and electrical equipment, as well as vehicles and transport equipment helped to boost this figure.

The rand price of merchandise exports fell by 2.2% but the Sarb said this was “more than outweighed” by strong growth in volumes.

Johan van den Heever, head of economic reviews at the Sarb, said that trade balances had normalised in the fourth quarter following significant industrial action, which was a visible hurdle to growth in the first three quarters.

Van den Heever said overall GDP growth of 1.5% in 2014, was “not inspiring and much less than what the economy really needs”.

Dividend payments offset exports

“The improvement in the trade balance was, however, partly offset by larger net income payments to non-resident,” the Sarb said.

Gross dividend payments to the rest of the world increased at a rate of 19% in 2014, compared with an increase of 9.7% in 2013. This was largely due to much higher gross dividend payments by private companies to their foreign parent companies, according to the Sarb.

January’s deficit not a good indicator – Sarb

Despite the spectacular R24.2 billion current account deficit recorded in January, following a R6.8 billion surplus in December, the Sarb said this was not necessarily an indicator of things to come.

Although the market had widely anticipated a deficit, since fewer work days in January generally lead to a large trade deficit in that month, the actual figure came in nearly three times higher than the consensus forecast of R7.8 billion. 

“One of the numbers that should be treated most cautiously is monthly trade statistics. They are the most volatile of all economic indicators,” cautioned Rashad Cassim, head of the research department at the Sarb.

“It’s very difficult to make sense of what one month says about the quarter. I don’t think we can make much of the first month, it could reverse completely in the second month,” Cassim said.

Exports fell by R20 billion in January to R67.1 billion, with imports rising more than R10 billion to R91.3 billion. According to Investec economist, Annabel Bishop, the drop in exports was due to low commodity prices and weak demand from South Africa’s key trade partners, particularly China.

Bishop said that electricity constraints would also have had an impact on production in South Africa.

“It is expected that retail businesses will be hardest hit by the precariousness of the rand coupled with the electricity insecurity facing businesses,” commented Karl Gotte at Standard Bank commercial banking.

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