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Economy in Brief

South Africa Current Account Has Record Deficit in Q2
by Carol Stone September 22, 2004

South Africa experienced its largest current account deficit ever and its first trade deficit in 22 years in the second quarter. Data reported today by the Reserve Bank of South Africa show the current account deficit at 49.3 billion Rand, equal to 3.8% of GDP. The trade accounts had a deficit of 5.5 billion Rand, the first since the second quarter of 1982. Gold is, of course, a major element in South Africa's exports, and the trade deficit excluding gold was 38.1 billion Rand. Trade deficits on this basis are frequent, but this was still the largest of those by far, compared with the previous record 25.0 billion Rand in Q4 1998.

South Africa also generally runs deficits in the services and income accounts, so such deficits in Q2 are not surprising. Transfers, however, were much more negative than normal as well, adding notably to the total current account shortfall.

The negative trade performance was not the fault of exports. These grew 8.1% in Q2, and those excluding gold were stronger still, with a 9.5% gain. But imports surged 18.6%. Commentary from the Reserve Bank of South Africa indicates that petroleum was the main culprit. The South African navy also acquired a new ship, an individual transaction large enough to impact the nation's overall trade picture, at least for this quarter.

At the same time, the accompanying capital flow data show that such a large current account was more than covered by portfolio and "other" net investment flows. Moreover, the trade deficit didn't seem to impart much harm to South Africa GDP. It grew 3.9% (annual rate) in Q2, faster than the 3.1% in Q1. A large component of that growth came in inventory; private consumption and capital investment also expanded. So this one-quarter plunge in the current account balance doesn't appear to suggest any fundamental deterioration in South Africa's general economic health.

Seasonally Adjusted Annual Rates -- Billions.Rand Q2 2004 Q1 2004 Q4 2003 2003 2002 2001
Current Account Balance -49.3 -14.4 -22.1 -10.1 +6.7 +0.3
  % of GDP -3.8 -1.1 -1.8 -0.8 +0.6 +0.0
Exports -- % Chg 9.5 5.1 -5.4 -10.6 21.8 21.1
Imports -- % Chg 18.6 1.3 2.0 -6.4 26.9 16.8
Balance on Goods -5.5 +21.0 +14.3 +28.6 +48.9 +43.9
  ex Net Gold Exports -38.1 -12.5 -21.6 +6.7 +5.8 +14.0
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