South Africa’s current-account unexpectedly swung to a deficit in the second quarter as imports outweighed exports and companies paid higher dividends.
(Bloomberg) — South Africa’s current-account unexpectedly swung to a deficit in the second quarter as imports outweighed exports and companies paid higher dividends.
The balance on the current account, the broadest measure of trade in goods and services, switched to an annualized deficit of 1.3% of gross domestic product, or 87 billion rand ($5 billion), from a revised 2.4% surplus in the previous quarter, the South African Reserve Bank said in a report on Thursday. Only one of 11 economists in a Bloomberg survey forecast a deficit to GDP.
The deficit was “largely due to higher dividend payments by companies with a direct investment relationship,” the bank said. “Direct investment relationship refers to entities where a single foreign direct investor owns 10% or more of the voting rights in that entity.”
The quarterly deficit is the first since the second quarter of 2020, the central bank said.
Key Insights
- The unanticipated current-account deficit may add to pressure on the rand, which has weakened 8% against the dollar this year as investors flock to the US currency on expectations of aggressive interest-rate hikes by the Federal Reserve to quell surging inflation.
- The negative balance was mainly driven by a shortfall on the services, income and current-transfer account widening to 358 billion rand in the second quarter from 216 rand billion in the prior three months. The deficit as a ratio of GDP increased to 5.5% from a shortfall of 3.4% — the largest since the first quarter of 1986. The shortfall was largely driven by the nation’s primary-income account deficit, which reflects outflows due to dividends and interest payments to foreign shareholders widening to 250 billion rand in the quarter from 98 billion rand — the largest since at least 1960, according to central bank data.
- The annualized trade surplus narrowed by more than a quarter to 272 billion rand, from 372 billion rand in the first quarter. That’s as the value of merchandise imports increased more than the value of goods exports.
- The central bank in July forecast a current-account surplus of 2% of GDP for 2022 and 0.4% of GDP for 2023.
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