In Q2 2011, South Africa recorded a current account deficit equivalent to 3.3% of GDP. The market was expecting a deficit of 3.4% of GDP. The latest current account reading compares with a deficit of 3.1% of GDP in Q1 2011. In value terms, the current-account deficit widened modestly to –R95.4 billion from –R87.8 billion in Q1 2011 (these are annualised numbers).
For 2010 as a whole, the current-account deficit was recorded at R74.96bn (2.8% of GDP).
The increased current account deficit in Q2 2011 was mainly due to further rise in merchandise imports, which increased from an annualised R661.7 billion in Q1 2011 to R696.4 billion in Q2 2011 (a rise of R34.7bn or 5.2%). This was partly due to an increase in the value of oil imports.
Despite the worsening global economic situation, SA merchandise exports actually performed well (platinum and vehicles), growing from R683.7bn in Q1 2011 to R711.5bn in Q2 2011 (up R27.9bn in the quarter). This meant that the surplus on the trade account narrowed marginally from 0.8% of GDP in Q1 2011 to 0.5% of GDP in Q2 2011.
The deficit on the services account widened fractionally in Q2 2011 to 3.82% of GDP from 3.81% of GDP in Q1 2011. During the second quarter of 2011, dividend outflows totalled R66.6bn (or 2.3% of GDP), up very modestly from R66.0bn in Q1 2011. More positively and somewhat surprisingly, dividend inflows amounted to an impressive R21.6bn (0.7% of GDP), well up from R11.0bn in Q1 2011.
The end result was actually a net decrease in net dividend outflows, dropping from R48.95bn in Q1 2011 to R44.95bn in Q2 2011 (1.6% of GDP). This outcome is a little surprising given that foreign investors have continued to accumulate a significant amount of SA bonds and equities. However, we need to also recognise that SA companies have undertaken worthwhile offshore investments (including within Africa) and that these investments are yielding a healthy return, a portion of which is regularly remitted to South Africa.
Looking forward, SA import intensity is likely to continue to rise as domestic expenditure improves; especially if there is a pick-up in fixed investment activity in 2012. This implies that the trade balance could be under some pressure over the coming 12 to 18 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 18 months given the increased foreign holding of SA bonds and equities. Consequently, a systematically larger (but still manageable) services and current account deficit is anticipated for the remainder of 2011 and all of 2012.
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