The South African Reserve Bank (SARB) reported on 21 June that the current account deficit widened further from 2,9% of GDP in 2017Q4 to 4,8% of GDP in 2018Q1.
The latest reading was the largest in almost four years and also exceeded economists’ expectations of around 2.9% of GDP.
According to analysis by Thabiso Mofulatsi, an economist at PwC Strategy, the increase in the current account deficit is primarily attributed to the switch in the trade balance to a deficit, as net gold and merchandise exports decreased.
The trade balance shifted to a deficit of R25-billion from a surplus of R72 billion previously – the first shortfall since 2016Q1. The decline in exports contributed to the 2,2% quarter-on-quarter (q-o-q) contraction of gross domestic product (GDP) during 2018Q1.
The value of merchandise exports decreased by 9.6% q-o-q to R1 056-billion after it had increased in the fourth quarter by 6% q-o-q
The decline was exacerbated by an 8,4% year-on-year (y-o-y) contraction in mining production in March, as well as a drop in manufacturing production of 1,3% y-o-y in the first quarter of 2018. The drop in mining and manufacturing production and the weakening in the rand price of mining commodities contributed to the decrease in merchandise exports.
Merchandise imports increased slightly by 1,3% q-o-q, coming in at R1 158-billion in 2018Q1, following an increase of 8,9% in the previous quarter. Import volumes increased by 8,8% q-o-q due to increased domestic demand for mineral products, specifically crude oil.
The SARB also noted that private sector credit extension (PSCE) increased by 4,3% y-o-y in the first three months of this year. This was slower than a rate of 5,3% y-o-y seen in the same period last year and is linked with the slow-down in economic activity.
Credit extension to the household sector increased by R21,7-billion during 2018Q1 and was associated with a strong recovery in consumer confidence. This rise in household credit also resulted in the ratio of household debt to nominal disposable income rising to 71,7% during 2018 from a reading of 71,2% in the preceding quarter.