The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL
The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL

THE deficit on South Africa’s current account — the broadest measure of trade in goods and services — widened more than expected in the second quarter, to 6.5% of gross domestic product (GDP) from a deficit of 5.8% of GDP in the first quarter, the South African Reserve Bank’s second quarter quarterly bulletin reported on Tuesday.

Economists.co.za economist Mike Schussler said the deficit was much worse than expected. "This is not good news and will not be good for the rand. The current account at 6.5% plus the government deficit at 4% gives a combined twin deficit of more than 10%. This is going over the speed limit."

The 6.5% deficit compares with a BDlive consensus forecast of 6.1%.

The deficit on the current account widened due to deterioration in the trade balance and services, income and current transfer account.

Shireen Darmalingam, economist at Standard Bank, said: "Although the current account deficit was a bit wider than we had anticipated, it should have no impact on monetary policy as we expect the repo rate to remain flat for some time. We expect an improvement in the current account deficit in the second half of this year."

The trade deficit widened to 2.9% of GDP in the second quarter from 2.4% in the first quarter, as export revenue was held back by lower international commodity prices and lacklustre growth in the physical quantity of nongold exports.

This was simultaneous with the shortfall on the services, income and current transfer account also widening, reflecting in part base effects resulting from "extraordinarily high" dividend receipts in the first quarter, the quarterly bulletin reported.

The bulletin also reported that the volume of South Africa’s merchandise exports advanced by a disappointing 0.6% in the second quarter following a firm increase of 7.6% in the first quarter.

Slowing economic growth and demand in China also reflected in the second quarter, with data showing the average dollar price of South Africa’s nongold mining export commodities fell 8% in the quarter, after rising 8.7% in the first quarter.

"This was partly due to weaker demand for mining commodities from key emerging-market economies, including China," the bulletin reported.

Gold exports were more positive, with the value of net gold exports rising by 1.1% in the second quarter. A decrease in the average realised rand price of net gold exports was fully offset by an increase in the physical quantity of net gold exports.

Nedbank economist Isaac Matshego said the deficit was not too surprising. "The external account has been weakening and we can see that with the trade deficit widening. For the rest of the year, the strikes in the mining and manufacturing sectors are expected to have a negative impact on exports, especially if they go on for a prolonged period."

The volume of merchandise imports, which rose by 8.2% in the first quarter, advanced by roughly 1% in the second quarter.

"This more subdued pace of increase could be explained by slower growth in the physical quantity of imported mining products," the bulletin said.

Kevin Lings, chief economist at Stanlib, said the deficit was much worse than market expectations.

"The worse than expected second-quarter current account deficit reflects a combination of factors, including a sizeable increase in imports, and some deterioration in net dividend outflows. Fortunately, there was a further improvement in travel receipts, which have reached another record high," Mr Lings said.