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SA’s current account deficit narrows significantly in Q1 to 1.2% of GDP

SA’s current account deficit narrows significantly in Q1 to 1.2% of GDP
A general view of the South African Reserve Bank in Pretoria, 3 November 2020. (Photo: Gallo Images / Lefty Shivambu)

South Africa’s current account deficit narrowed materially in the first quarter of this year, underpinned by a widening of the country’s trade surplus. That's the good news. But the bad news is that this has been boosted by falling domestic demand which curtailed imports. 

South Africa’s deficit on the current account of the balance of payments fell sharply in the first quarter (Q1) to R84.6-billion from a revised R162.9-billion in Q4 of 2023.

“The current account deficit as a ratio of gross domestic product (GDP) narrowed to 1.2% in the first quarter of 2024 from 2.3% in the fourth quarter of 2023,” the South African Reserve Bank said on Thursday.

The current account is a key part of a country’s balance of payments and is essentially an accounting of its transactions with the rest of the global economy.

Underlining this improvement was a widening trade surplus, which reached R183.4-billion in Q1, over double what it amounted to at the end of last year.

Current account

Current account release June 2024. (Sources: Stats SA and SA Reserve Bank)

This would normally be supportive of the rand, but the data did not prevent the rand from slipping midday Thursday to 19/dlr, its lowest level in six weeks, amid jitters about the outcome of frantic coalition talks in the wake of the 29 May election.

Read more in Daily Maverick: After the Bell: The rand has been relatively stable this year, but post-election horse-trading looms

And a narrowing deficit can be a double-edged sword on this front. In this case, it highlights subdued demand pressures in South Africa’s low-growth economy, which contracted 0.1% over the course of the first three months of 2024.

Read more in Daily Maverick: ‘Weak, weak, weak’ — SA economy contracts 0.1% in Q1, but economists see growth in Q2

“Subdued demand domestically, reflective of a fragile economic environment, continues to weigh on import activity. Indeed, consumers remain highly constrained, with household consumption expenditure contracting in the first quarter of the year,” Investec economist Lara Hodes said in a note on the data.

But on a positive note, South Africa’s exports may pick up as the global manufacturing sector gathers steam.

“Going forward, we could see the surplus on the trade account widen further as manufacturing conditions improve globally,” Hodes said.

If the rand remains at these levels or weakens further, that will also help to give domestic exporters a lift. But it would also add to inflation pressures by making imports more expensive, hitting the pockets of South Africa’s hard-pressed consumers — a clear-cut case of another double-edged sword. DM

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