SA current account deficit widens noticeably at end of 2023

South Africa registered a much wider current account deficit of R165.5 billion in the fourth quarter of 2023 equal to 2.3% of gross domestic product (GDP), primarily due to a narrower merchandise trade surplus and the wider shortfall on the primary income account.

According to data the South African Reserve Bank released, South Africa ended up recording a current account deficit equal to 1.6% of GDP in 2023, compared to -0.5% of GDP in 2022.

The country’s current account deficit widened to R165.5 billion in the fourth quarter from a revised shortfall of R34.4 billion (previously: -R19.3 billion) during the third quarter. The trade surplus narrowed from R181.1 billion in the third quarter to R88.1 billion in the fourth quarter, as the value of merchandise imports rose more than that of goods exports, signalling less favourable commodity export prices.

For 2023 as a whole, the trade surplus narrowed to R103.5 billion (1.5% of GDP) from R224.2 billion (3.4% of GDP) in 2022.

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Shortfall on services, income and current transfer account

The shortfall on the services, income and current transfer account widened from R215.4 billion in the third quarter of 2023 to R253.7 billion in the fourth quarter.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the wider shortfall stemmed from a larger deficit on the primary income account, while the deficits on the services and secondary income accounts narrowed.

The overall deficit on the services, income and current transfer account as a proportion of GDP widened from 3.1% in the third quarter to 3.6% in the fourth quarter. On an annual basis, the shortfall on the services, income and current transfer account narrowed to R215.9 billion (3.1% of GDP) from R254.3 billion (3.8% of GDP) in 2022.

The merchandise trade surplus was offset by a larger deficit on the invisible accounts.

Source: Sarb

Van der Linde points out that South Africa has recorded a shortfall on its current account for the past seven quarters, with the overall trend reverting to the structural deficit. The country’s terms of trade (including gold) deteriorated further in the fourth quarter (-0.5% q/q) as the rand price of imported goods and services rose more than that of exports.

On an annual basis, the terms of trade also deteriorated (down 4.8% compared to 2022) as the price of imports increased while that of exports moved broadly sideways. “Commodity price tailwinds have faded and external conditions are much less favourable than they were in 2021 when the country recorded a current account surplus of 3.7% of GDP, he says.

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Current account deficit expected to continue in 2024

The economists at the Nedbank Group Economic Unit, Liandra da Silva and Nicky Weimar, say the deterioration in the current account is expected to continue in 2024, at least in the first half of the year as economic conditions remain subdued.

“The trade account was volatile throughout 2023, reflecting the uncertainty in the domestic as well as the global environments. Trade performance will remain contained by subdued global demand and lower commodity prices, which will weigh on export volumes and prices.”

However, they say, net gold exports should offer some support as the global risk-off environment bolsters the price of the safe-haven asset.

They also expect import growth to remain soft on muted domestic demand and weaker investment activity.

“Trade conditions should recover more meaningfully in the second half of the year as monetary policy easing bolsters demand. However, domestic structural inefficiencies will continue to place a lid on export volumes.”

The income account deficit should narrow as bleak corporate earnings prospects limit dividend payments, although higher Southern African Custom Union payments, announced in the 2024 National Budget, will provide some upside pressure. The deficit on the services account will narrow as global travel continues to edge closer to pre-pandemic levels, they say.