SARB QB update: Current account deficit narrows by less than expected to 2.3% of GDP in Q3.17 from -2.4% previously

13 Dec 2017

Annabel Bishop

Chief Economist

The current account deficit narrowed only slightly in Q3.17 to 2.3% of GDP from -2.4% in Q2.17, against consensus expectations of a deficit of 2.0%.

Figure 1: Balance of payments: current account
  • The current account deficit narrowed only slightly in Q3.17 to 2.3% of GDP from -2.4% in Q2.17, against consensus expectations of a deficit of 2.0%.
  • The earlier release of the international trade in goods and services data by the SARB showed an increase in the seasonally adjusted trade surplus and a decline in the deficit on the services account. The income component of the current account is only released with the Quarterly Bulletin and has shown an increase in the deficit. The estimation of the income component likely accounted for the divergence between consensus and the actual outcome.
  • The income component includes lagged dividend and interest payments/receipts associated with fixed and portfolio investments captured in the financial account.
  • In Q3.17 dividend and interest payments to non-residents increased by more than the rise in dividend and interest receipts yielding the larger income deficit of R138bn compared to R124bn in Q2.17.
  • Dividend and interest payments to non-residents increased following two consecutive quarters of decline. According to the SARB there was a “resumption of dividend payments by companies after abstaining from regular dividend payments during the recent past.” In addition “gross interest payments increased relatively firmly” during Q3.17.
  • The seasonally adjusted trade surplus increased to R71bn in Q3.17 from R64bn in Q2.17. In Q3.17, the contraction in imports, of 3.1% q/q, outpaced the fall in exports, of 2.4% q/q, yielding the larger surplus. The SARB noted that “(t)hese declines in the value of both imported and exported goods were largely driven by lower volumes”. Expressed as a percentage of GDP, the trade surplus rose to 1.5% from 1.4% previously.
  • The trade account has maintained a surplus position since Q4.16 as weak domestic consumption and investment rates have led to import compression whilst the export performance has been comparatively stronger in line with lift in global demand.
  • The deficit on the service account narrowed to R1.5bn in Q3.17 from R7.2bn in the prior quarter mainly on account of “an increase in gross travel receipts”.
  • We expect the current account deficit to remain well contained between 2 – 4% of GDP over the coming quarters with weak domestic activity yielding trade surpluses or relatively small trade deficits.
Figure 2: Balance of payments on current account (R’bn seasonally adjusted and annualised)