The rand weakened sharply against the dollar following Reserve Bank
data that showed the first-quarter current account deficit to gross domestic
product ratio widened to 5.0% from a downwardly revised 4.6% of GDP in the
fourth quarter of last year.
The rand’s slump comes on the back of more bad news last week – as
City Press reported on Sunday, evidence of a downturn in the economy this week
bodes ill for the ordinary person and for the prospect of South Africa
maintaining its key investment-grade status for the rest of the year.
Despite the country successfully retaining its investment-grade
status, GDP figures indicate a downturn is on the cards.
The widening of the current-account-to-GDP ratio “is against the
consensus and our expectations for a narrowing to 4.1% of GDP and is, thus,
ZAR-negative,” said Citi Research economist Gina Schoeman.
By noon the rand traded at R15.37 to the greenback, down 1.38% from
its overnight close in New York.
The trade deficit narrowed slightly to -R37.5 billion (it was -R41
billion in the fourth quarter) and the services deficit reduced to -R1.5 billion
(-R3.8 billion in the fourth quarter), but this was expected given the advance
release of trade and services data by the Reserve Bank when Statistics South
Africa released GDP, Schoeman said.
StatsSA last week reported South Africa recorded a negative growth
rate of -1.2% in the first quarter of 2016, a far cry from the National
Development Plan’s mooted 5%.
Schoeman said today the negative surprise to Citi’s forecast was a
wider income deficit of -R136 billion (-R112 billion in the fourth quarter) and
transfers deficit of -R36 billion (-R33 billion in the fourth quarter).
“The income deficit is now the largest on record, with direct
investment receipts continuing to shrink and a big pick-up in dividend payments
abroad. The latter is from non-direct investment which includes portfolio and
other investment.”
The improvement in the trade deficit was mostly due to export value
(1.1%) outpacing import value (0.8%).
“Growth in both was due to a pick-up in prices: export price growth
(2.9%) offset a 2.2% contraction in volumes, while import prices grew 2.4% while
volumes slowed to 1.6%. A smaller services deficit was mostly due to a 9.0%
increase in travel receipts in line with better tourism numbers and a weaker ZAR
now that visa regulations have eased.”
On a non-seasonally adjusted non-annualised basis, the first
quarter’s current account totaled R60.9 billion.
“While we are encouraged that net portfolio investment picked up to
R21.5 billion (-R11 billion in the fourth quarter) it is still concerning that
the bulk of financing comes from other investment (R17.7 billion) and unrecorded
transactions (R33.3 billion). The latter two accounts are generally unknown with
the Reserve Bank ascribing a large bulk of other investment to trade credits,”
said Schoeman.
Schoeman expressed concern over the drop in gross savings to GDP
from 15.4% in the fourth quarter to 15% in spite of higher interest rates. She
said households and government remain dis-savers. The only real saver in the
economy has been corporates, “but even this segment slipped in the first
quarter”.
Gross investment remained 20.0% of GDP.
Schoeman said Citi continues to expect the current account deficit
to narrow, but not for encouraging reasons: import compression (particularly
consumer imports, as has been seen in the first quarter) and reduced dividend
payments as gross operating surplus remains weak.
“Today’s worse-than-expected figures understandably worsen our view
on the 2016 current account deficit to GDP ratio, which we have adjusted from
3.2% of GDP to 3.9% of GDP.” – Fin24