The SA Daily
11 September 2020
Deeper current account deficit
Shireen Darmalingam
- In Q2, the current account balance swung deeper into deficit than expected, to -2.4% of GDP; this follows a surplus of 1.3% of GDP in Q1:20. The deficit widened to -R104.0bn on a seasonally adjusted and annualised basis in Q2:20, from a surplus of R70bn in Q1:20. This deterioration came amidst the lockdown in that quarter restricting exports. Export volumes fell noticeably while imports too slid to a lowest in over a decade in Q2, resulting in a significant narrowing of the trade surplus which more than halved, to R91.5bn, from R201.7bn in Q1.
- The supply-chain disruptions in SA’s main training partners too weighed heavily on shipments in Q2; the services account widened to -R56.7bn, from R7 million in Q1. As tourism income comprises a substantial part of the services account and international travel remains restricted even in the current lockdown Level 2, the services account may well remain constrained in Q3:20.
- The deep Q2 deficit outcome saw the rand weaken by 1.4% yesterday, after it has already shed 17.1% since January. The rand now faces further pressure from the current account as well as the coronavirus crisis, with further risks posed by SA’s still deteriorating fiscal position and poor electricity supply, both of which are most likely to persist into year-end.
- Nonetheless, we still see scope for the rand to strengthen to R16.50/$ by December but its path will depend on the duration of the pandemic and, now long overdue, fiscal policy interventions. The rand will however remain vulnerable if SA’s fiscal path proves unsustainable when the world economy recovers.
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