PRETORIA (Reuters) - South Africa’s current account deficit widened more than expected in the second quarter as prolonged strikes hit the platinum, metals and engineering sectors.
The rand fell to its lowest in nearly six months against the dollar on the data, hinting at rising import price pressures which could force the South Africa Reserve Bank to raise interest rates further in coming months.
In its latest quarterly bulletin, the South African Reserve Bank (SARB) said the deficit on the current account expanded to 6.2 percent of GDP in the second quarter from 4.5 percent in the first. It was the biggest shortfall since the 6.8 percent recorded in the third quarter of 2013.
“South Africa’s current account deficit is worryingly large, and it adds pressure on the SARB to continue raising interest rates despite the weakness of the economy,” Capital Economics analyst Shilan Shah said.
“To compound matters, the deficit is also increasingly being funded by portfolio flows, which are more prone to sudden reversals compared to foreign direct investment.”
The trade gap increased to 101 billion rand ($9.3 billion) from 75 billion rand in the first three months of the year, with declining commodity prices denting income from exports.
Exports excluding gold fell, largely due to lower platinum output after miners went on strike from January to June to demand higher wages.
“In addition to lower supply, export volumes were also weighed down by lower demand from trading partner countries in Asia, in particular China, India, Thailand and Malaysia,” the central bank said.
Economists polled by Reuters last week expected the current account gap to widen to a more moderate 5.45 percent.
The central bank raised its main rate, the repo rate, by 25 basis points in July even as it cut its 2014 economic growth forecast to 1.7 percent, as it seeks to rein in inflation which has pushed above a 3-6 percent target band.
The SARB will hold its next policy meeting next week.
The rand extended its losses against the dollar after the data, falling nearly 1 percent to 10.9245, its weakest since late March according to Thomson Reuters data.
South Africa’s financial account had proved resilient despite a scaling back in the U.S. Federal Reserve’s asset purchasing programme which has cut flows to emerging markets, the Reserve Bank said.
A net 16.2 billion rand worth of portfolio investments flowed into South Africa’s economy between April and June, up from 3.4 billion rand in the first quarter.
Growth in spending slowed to 1.8 percent in the second quarter as high levels of debt, increases in energy and transport costs and weak employment crimped household demand.
“This slower pace of spending was consistent with a moderation in growth in the disposable income of households,” the Reserve Bank said.
$1 = 10.8680 South African rand