In turn, this widening occurred primarily on account of a decrease in income receipts from abroad and mainly receipts related to direct investment abroad. The decrease reflects the lagged effects of SA FDI abroad that occurred a few quarters earlier.


The magnitude of income payments was steady but payments linked to foreign FDI and portfolio inflows are likely to increase in the coming quarters. In Q1.7 foreign direct investment in SA increased from R6.5bn in Q4.16 to R9.0bn in Q1.17 whilst portfolio investment rose from R1.9bn in Q4.16 to R25.9bn in Q1.17. The SARB notes that the portfolio inflows were comprised of the “acquisition of domestic debt securities by foreign investors, as their search for yield continued unabated.” In contrast, net sales of domestic equity securities were registered on “concerns surrounding weak growth prospects for the South African economy and a concomitant subdued outlook for profit growth of listed companies in particular.”


The trade surplus remained steady at 1.3% of GDP in Q1.17.


The trade dynamics arise from merchandise export price growth of 0.6% quarter on quarter seasonally adjusted annualised (qqsaa) whilst merchandise import prices contracted by 1.7% qqsaa.


In Q1.17, export growth was primarily driven by commodity exports, whilst the value of exported manufactured and agricultural goods decreased.


On the import side in Q1.17 “(t)he import values of mining and agricultural products increased notably, while that of manufactured goods decreased substantially.”


The increase in commodity prices and the value of commodity exports has led to an improvement in the terms of trade. The terms of trade have steadily improved throughout 2016 and into 2017 which in turn has contributed to the rand’s appreciation of 13% in 2016 and 5% in the year to date.


We forecast the current account deficit to decline to 2.8% of GDP in 2017 from 3.3% in 2016. The expected narrowing in the deficit is reflective of a soft domestic consumption and investment demand environment.  

The SARB’s Quarterly Bulletin also provides some perspective on the state of the household sector, in elaboration of the earlier release of the Q1.17 GDP figures by Stats SA.


Household consumption expenditure growth contracted by 2.3% qqsaa in Q1.17 after increasing by 2.2% qqsaa in both Q3.16 and Q4.16.


In Q1.17, household spending on durable, semi-durable and non-durable goods contracted whilst growth in expenditure on services slowed. The SARB noted that “(g)rowth in household expenditure could remain weak in the wake of South Africa’s sovereign credit rating downgrades.”


The SARB ascribes the decline in household spending to “tight credit conditions, a contraction in the real disposable income of households, and persistent low consumer confidence levels.”


Specifically, real disposable income contracted at a rate of 1.6% in Q1.17 compared to an increase of 2.3% in Q4.16.


The measure of household indebtedness declined slightly in Q1.17, with the ratio of household debt to disposable income at 73.2% versus 73.5% in Q4.16.


In terms of fixed investment, gross fixed capital formation slowed to 1.0% qqsaa in Q1.17 from 1.7% qqsaa in Q4.16.


Private sector fixed investment, which comprises nearly two-thirds of total fixed investment, rose by 1.2% qqsaa after having contracted in each of the prior five consecutive quarters. The increase was derived from “increased capital outlays on residential buildings and machinery and other equipment.”


Private sector fixed investment declined by an average of 6.5% between 2014 and 2016. The potential for a recovery in private sector fixed investment in 2017 is likely to have been undermined by the loss of business confidence, post the cabinet reshuffle and subsequent credit rating downgrades. Business confidence has been persistently depressed on average since 2009. In Q2.17, fell to the lowest level since the 2008/09 recession (see figure 4).