In Q1 2011, South Africa recorded a current account deficit of 3.1% of GDP. The market was expecting a deficit of 2.8% of GDP.
The latest current account reading compares with a deficit of only 1.0% of GDP in Q4 2010. In value terms, the current-account deficit widened to –R87.8 billion from a mere –R27.5 billion in Q4 2010 (these are annualised numbers). For 2010 as a whole, the current-account deficit was recorded at R74.1bn (2.8% of GDP).
The increased current account deficit in Q1 2011 was mainly due to a substantial increase in merchandise imports, which increased from an annualised R600.5 billion in Q4 2010 to R661.7 billion in Q1 2011 (a rise of R61.2bn).
At the same time merchandise exports remained relatively unchanged in Q1 2011 at R683.7bn (up only R7.7bn (annualised) in the quarter). This meant that the surplus on the trade account narrowed significantly from 2.7% of GDP in Q4 2010 to only 0.8% of GDP in Q1 2011.
The deficit on the services account widened fractionally in Q1 2011 to 3.8% of GDP from 3.7% of GDP in Q4 2010. This deterioration was partly due to an increase in net dividend outflows. In the first quarter of 2011, dividend outflows totalled R66.0bn (or 2.3% of GDP), up from R48.8bn in Q4 2010, while dividend inflows amounted to R17.0bn (0.6% of GDP), up from R10.4bn in Q4 2010. The end result was an increase in net dividend outflows from R38.44bn in Q4 2010 to R48.9bn in Q1 2011 (1.7% of GDP). This outcome is not all that surprising, given that foreign investors have continued to accumulate SA bonds and equities.
The recent trend in the travel account, especially in the nine months since the World CUP, is worth exploring in more detail. During the first quarter of 2011, travel receipts continued to decline, dropping by a further R0.18 billion. In total, travel receipts have dropped by a massive R14.2bn since the World Cup, and are well below levels experienced in 2008, suggesting that there has still not been a noticeable uplift in foreign tourism following the World Cup.
Travel payments (outflows) slumped noticeably in Q1 2011, down R7.6bn, suggesting that there was a pull-back in the number of South Africans travelling overseas, certainly relatively to Q3 and Q4 2010. The net result was that the surplus on the Travel Account widened by a welcome R7.4 billion in Q1 2011, having narrowed alarming in the six months following the World Cup.
Looking forward, import intensity is likely to rise as domestic expenditure improves; especially if there is a pick-up in fixed investment activity. 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. In addition, dividend/interest outflows are also likely to widen further over the next 12 to 24 months, given the increased foreign holding of SA bonds and equities. Consequently, a systematically larger (but still manageable) services and current account deficits are anticipated for 2011/2012.
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