The SA Daily
10 December 2018
Wider deficits unfavorable
- There has been a general risk-off mood in the market based on the following key risk factors: concerns around global growth, Fed hikes, oil prices, uncertainty around US-China trade relations and Brexit. SA assets have generally moved in line with developments surrounding these key risk events.
- Amidst the less benign global backdrop, locally last week, SA’s current-account deficit (CAD) for Q3:18 widened on the back of a narrower trade surplus and came in at 3.5% of GDP, compared with a revised 3.4% of GDP deficit in Q2:18. There were also reports that SA’s power utility Eskom had requested the government to take over around R100bn of its’s debt. While at this stage it is unclear how government will proceed with Eskom’s request, there has been concern that government’s already constrained budget would be affected.
- SA’s CAD and fiscal balance remains large relative to it’s peers. We continue to monitor both the CAD as well as news around governments finances given that widening deficits make the currency vulnerable to portfolio outflows amidst a less benign global setting. Given the less-than-favourable global backdrop, EMs with wider deficits, relative to peers may be deemed riskier and punished more severely by the market.
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