Oct 02, 2012
SA vulnerable to shifting sentiment as current account deficit widensBack
Mangaung|Absa Capital|China|South Africa|Gross Domestic Product|Machinery|Mechanical Equipment|Transport|Ilke Van Zyl|Jeff Gable
© Reuse this
However, in the context of weak business confidence, falling private investment and modest economic growth, “imbalances are appearing”, most notably on the trade account.
Imports of machinery and mechanical equipment rose strongly in the second quarter and economist Ilke van Zyl said that, given the relative price inelasticity of government demand, imports were likely to continue. South Africa intended pursuing a portfolio of transport, power and water projects collectively valued at around R860-billion between 2012/13 and 2014/15, the bulk of which would be funded through debt and revenues earned by State-owned companies.
But in the meantime, the country’s export performance was weakening in light of recessionary conditions in a number of European markets, as well as slowing growth in China and other emerging markets.
“Therefore, we expect the current account deficit to remain wide over the coming quarters, and we have revised our current account deficit as a percentage of gross domestic product (GDP) forecast to 5.5%, from 5%,” Van Zyl added.
In its September quarterly bulletin, the South African Reserve Bank reported that the deficit on the trade account rose to R75.7-billion in the second quarter, from R42-billion in the first. It also reported a rise in the current account deficit to 6.4% of GDP, from 4.9% in the prior quarter.
“This implies the country is in a vulnerable position as far as financing is concerned given that the bulk of the deficit is financed by fixed income portfolio flows,” she said.
But macro and fixed income research head Jeff Gable said it was difficult to offer a specific level at which the current account deficit would become unsustainable to the point where infrastructure spending had to be reigned in.
“The practical answer is that the current account deficit becomes unsustainable when you can’t finance it. In some countries current account deficits of 1% or 2% of GDP aren't financeable. In South Africa, currently we find that a current account deficit, [which] in the second quarter was more than 6% of GDP, was more that financeable.”
But the ability of South Africa to continue to finance the deficit would depend materially on whether global investors continue to believe there is a return for their assets in South Africa.
“For policymakers, all you know is that the larger your need for global finance, the more exposed you are to a turn in sentiment. Therefore, [policymakers] feel more comfortable when the deficit is lower because the pain that can be levied on you when sentiment turns is less,” Gable elaborated.
Investors and the credit rating agencies were increasingly focused on the country’s social and political tensions, particularly in light of ongoing industrial relations strife. Absa Capital, therefore, argued that more assurances might need to be offered beyond the National Treasury’s continued assertion that South Africa’s policies remain “stable and predictable”.
The Budget deficit forecast in the upcoming Medium-Term Budget Policy Statement of October 24 would also be heavily scrutinised, as would the African National Congress’s elective conference, taking place in Mangaung, in December.
“There is an awful lot to play for in 2013. It’s a question of policy, it's a question of stability, it’s a question of trying to find the right answers for South Africa . . . [and for dealing with] the core issues of poverty, inequality and unemployment,” Gable warned.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines
Other Construction News
Updated 7 hours ago The World Trade Organization reached its first ever trade reform deal on Saturday to the roar of approval from nearly 160 Ministers who had gathered on the Indonesian island of Bali to decide on the make-or-break agreement that could add $1-trillion to the global...
Recent Research Reports
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 Report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
Projects in Progress - Second Edition (PDF Report)
Creamer Media’s second Projects in Progress supplement considers some of the major project developments under way, including high-profile energy and transport projects, as well as a few of the lower-profile public and private developments. What remains apparent is...
Water 2013: A review of South Africa’s water sector (PDF Report)
Creamer Media’s Water 2013 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Canadian Mining Roundup for June 2013 (PDF Report)
The June 2013 roundup includes details of the development of TSX-V-listed Aldridge Minerals’ flagship Yenipazar polymetallic project, in Turkey; the Canadian Nuclear Safety Commission’s renewal of Cameco’s uranium mining licence pertaining to the Cigar Lake...
This Week's Magazine
Mitsubishi Motors South Africa (MMSA) has introduced a 4x2 derivative of its Pajero Sport sports-utility vehicle (SUV), which will give it access to a substantial slice of the full-size SUV market, where it will compete with the likes of the Ford Everest, Chevrolet...
South African Energy Minister Ben Martins has affirmed that the government wants the country to be globally competitive in the nuclear sector. "Our responsibility has always been ... to ensure that, in nuclear energy, South Africa can compete with the rest of the...
Mercedes-Benz South Africa (MBSA) president and CEO Dr Martin Zimmermann describes the new S-Class as “a special place to be”, with the car creating a sense of “wellness” once you are seated inside the German brand’s flagship model. It is difficult to argue...
Water scarcity and water-quality issues are broadly recognised and understood in most political, business and civil organisations in South Africa, but solving water issues will require wide and continuous action in catchments and municipalities by organisations and...
Work is well under way on the R212-million Imvutshane dam, 30 km north-west of Stanger, in KwaZulu-Natal, which is a key link in supplying people in rural Maphumulo with a reliable source of safe drinking water.