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The SA Daily 07 December 2018

Q3 deficit widened

  • The Q3 current account deficit (CAD) widened to 3.5% of GDP, from a downwardly revised 3.4% in 2Q18 (from 3.3%), due to a narrowing of the trade surplus. However, net income, services and transfers compressed, thereby somewhat counterating the surplus. Also, the rand price of imports increased faster than the rand price of exports, which incurred a deterioration in terms of trade (see 3Q18 CAD widens to 3.5% of GDP of 06 December, by Thanda Sithole).
  • The CAD year-to-date averages 3.8% of GDP; last year’s average was 2.4%. We still foresee some improvement in the deficit, as subdued domestic demand and the lagged impact of a weaker rand should support the trade balance, and lower oil may support the terms of trade and therefore support the trade balance.
  • However, the medium-term SA mining sector outlook is bleak, and global growth concerns are key risks to the CAD.
  • The rand sold off after the Q3 CAD was published. It remains undervalued and vulnerable to CAD-widening, especially in a less benign global setting and Eskom’s dire financial situation (see rand and bonds further down).

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