SA Current Account Deficit Q2 2010

In Q2 2010 South Africa recorded a current account deficit equivalent to a mere 2.5% of GDP. The market was expecting a deficit of 3.2% of GDP. This compares with a deficit of 4.6% of GDP in Q1 2010. In value terms, the current account deficit narrowed to R66.9 billion from -R116.1 billion in Q1 2010 (these are annualised numbers). For 2009 as a whole, the current account deficit was recorded at R96.6bn (4.0% of GDP).

The smaller than expected current account deficit was due to a combination of increased exports, less dividend outflows and significantly better travel receipts. More specifically, the trade balance moved from a deficit of R12.9 billion in the first quarter of 2010 to a surplus of R13.2 billion in the second quarter of 2010, while net dividend outflows fell from R55.2 billion in Q1 2010 to R50.1 billion in Q2 2010. There was also a sharp R15.7bn increase in travel receipts.

The deficit on the services account narrowed dramatically in Q2 2010 to 3.0% of GDP from 4.1% of GDP in Q1 2010. This improvement was due to a combination of less net dividend outflows and a sharp rise in travel receipts. The declining trend in dividend outflows reflected the fact that company earnings have been under significant pressure as a result of the recession.

Looking forward, SA exports are likely to struggle to accelerate significantly into 2011 given the still strong Rand, while import intensity is likely to rise as domestic expenditure improves. This implies that the trade balance could be under some pressure over the coming 24 months; although the deterioration is expected to be fairly modest given the still relatively sluggish domestic economy. In addition, dividend outflows are also likely to start to widen over the next 12 to 24 months as economic activity improved and private sector corporate earnings rise (it is estimated that foreigner’s own around 28% of the JSE). Consequently, a systematically larger services and current account deficit is anticipated for 2011/2012.