SA fourth-quarter data fuels recovery hopes

| Friday March 26, 2010 00:00

The central bank said in its latest quarterly bulletin released on Tuesday that the current account gap dipped to a smaller-than-expected 2,8 percent of GDP from a downwardly revised 3,1 percent the previous quarter, aided by higher exports and a drop in dividends paid to foreign investors.

Economists had forecast 3,6 percent for the fourth quarter.

The 4 percent of GDP deficit for 2009 was the narrowest annual figure since 2005 and shrank sharply from the 7,1 percent of the previous year.

'Both import and export volumes rose in the fourth quarter of 2009, consistent with the recovery in domestic expenditure and world trade,' the bank said.

'At the same time South Africa's terms of trade improved, contributing to a modest increase in the trade surplus and a narrowing of the deficit on the current account.'

The current account gap was a drag on the rand currency and economy for a number of years, peaking at close to 9% in 2008, but smaller gaps, partly due to weak consumer spending during a recession last year that cut imports, helped the rand recover.

The rand rose 22,3% against a basket of major currencies last year, also lifted by higher commodity prices - South Africa is a major metals exporter - and an improved growth outlook late in the year and has remained relatively firm so far in 2010.

The Reserve Bank report also said the deficit on the current account was easily financed through capital inflows, particularly portfolio flows as investors snapped up local assets when global financial and economic conditions improved.

Foreign portfolio inflows rebounded to R107,2-billion for the full year against a outflow of R71,5-billion  in 2008 at the height of the global financial crisis.

Consumers have been struggling under high debt levels and big job losses during a recession that ended in the third quarter of last year.

But household spending returned to growth in the last quarter of 2009, for the first time since early 2008, suggesting consumers may be starting to benefit from the 5 percentage points in interest rate cuts made between December 2008 and August last year.

The number of people employed in South Africa's non-agricultural sectors also rose in the quarter, by 0,2 percent from the third quarter, Statistics South Africa said on Tuesday.

While debt levels remain high, service costs also declined in the fourth quarter, easing the need for another rate cut later this week from the current 7 percent repo rate.

The central bank said household spending grew by an annualised 1,4 percent, with higher spending, particularly on cars, computers and mobile phones, lifting gross domestic expenditure by 5 percent compared with the previous quarter.

'Following five consecutive quarters of contraction, real final consumption by households rose in the fourth quarter of 2009 alongside an increase in real disposable income.'

The Reserve Bank also warned that there were still some underlying inflationary pressures in the economy, primarily from administered prices such as fuel and electricity.

Consumer inflation to be released on Wednesday is expected to slow back into the Reserve Bank's 3 to 6 percent target range, possibly to 5,7 percent year-on-year.

Nineteen of 22 economists polled by Reuters last week saw the Reserve Bank leaving the repo rate at 7 percent, with three expecting a 50 basis points cut.(Reuters)