SA’s current account deficit narrows, imports decrease

South Africa registered a slightly narrower current account deficit of R84.6 billion in the first quarter of 2024, equal to 1.2% of GDP.

The country’s current account deficit in the first quarter of 2024 came from a revised shortfall of R162.9 billion (previously: -R165.5 billion) during the preceding quarter. The trade surplus widened from R90.9 billion in the fourth quarter of 2023 to R183.4 billion as the value of goods exports increased marginally while that of merchandise imports declined.

Higher export receipts were attributed to favourable prices, while the decline in imports of goods and services was due to lower volumes. Consequently, South Africa’s terms of trade (including gold) improved in the first quarter as the rand price of exported goods and services increased more than that of imports.

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Wider shortfall from larger deficits

Meanwhile, the shortfall on the services, income and current transfer account widened from R253.9 billion in the fourth quarter to R268 billion in the first quarter.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the wider shortfall stemmed from larger deficits on the primary income account (2.2% of GDP) and to a lesser extent, the current transfer account (0.6% of GDP), while the shortfall on the services account narrowed to 0.9% of GDP.

The overall deficit on the services, income and current transfer account as a proportion of GDP widened from 3.6% in the fourth quarter to 3.7% in the first quarter.

The wider merchandise trade surplus was offset by a larger deficit on the primary income account:

Source: SARB

Current account deficit for 8 consecutive quarters

Van der Linde says South Africa recorded a deficit on its current account for eight consecutive quarters. “Services exports have yet to return to pre-pandemic levels with the services account remaining in deficit territory since the pandemic.”

South Africa’s merchandise trade flows at the start of 2024 were impacted by heavy congestion at local ports which, together with soft demand, may have contributed to reduced import volumes during the past quarter, he says.

“Meanwhile, the marginal lift in quarterly merchandise exports was mostly due to higher prices, as supply side constraints undermined export production.”

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Liandra da Silva and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the smaller current account deficit mainly reflects the impact of a collapse in import volumes caused by weak domestic demand.

“We expect the trade account to remain in surplus for the rest of the year. Exports will likely improve further on steadier electricity supply and improved logistics. In addition, the world economy will probably fare marginally better in second half of the year as easing monetary policy lifts demand in most advanced countries and China’s stimulus and interventions start to translate into firmer activity.”

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Import volumes expected to stay low for longer

Da Silva and Weimar say import volumes will likely remain subdued for longer, bouncing back towards year-end as domestic demand recovers, supported by lower inflation and easing interest rates.

“At this stage, we believe the export recovery will outweigh the anticipated rebound in imports later this year. Much depends on the terms of trade, which is expected to remain broadly unfavourable in 2024.”

Given muted domestic growth, the income deficit should narrow slightly as soft corporate earnings contain dividend payments, they say.

“The services deficit should remain relatively steady, underpinned by the continued revival in tourism. Altogether, we expect a slightly smaller current account deficit of 1.4% of GDP in 2024 from 1.6% in 2023,” said Da Silva and Weimar.