SA’s current account deficit narrows in Q3

South Africa's economy has shown signs of improvement in the third quarter, with the current account deficit narrowing, according to a recent report by the South African Reserve Bank. CNBC Africa's Godfrey Mutizwa sat down with Nthabiseng Molemoeng, Senior Manager of Balance of Payments at the central bank, to discuss the key findings from the report. Molemoeng highlighted several important trends that are shaping the country's economic landscape. One of the main points of focus was the narrowing of the current account deficit, which decreased from 1.6% to 0.3% of the GDP in the third quarter. This improvement can be attributed to a reduction in the trade surplus, as imports of goods outpaced exports during this period. Molemoeng noted that while both exports and imports increased, the rise in imported goods was more significant, leading to a contraction in the trade surplus. In terms of exports, the mining sector saw a boost, with coal exports experiencing significant growth. Molemoeng attributed this increase to the high demand for coal, driven by factors such as supply shortages and a shift from gas to coal in Europe. The price of coal also played a role in boosting exports, with Molemoeng mentioning a price increase that contributed to the overall growth in the sector. Another aspect discussed in the interview was the goods and services account, which encompasses trade in goods as well as services. Molemoeng highlighted how the pandemic had impacted this account, particularly in terms of travel receipts. While there has been some recovery in certain sectors, such as tourism, the overall level is still below pre-pandemic levels. The balance between exports and imports of goods and services remains crucial for maintaining a healthy current account balance. When it comes to the terms of trade, Molemoeng pointed out a concerning trend of deterioration during the third quarter. The terms of trade measure the ratio of export prices to import prices, and a decline in export prices coupled with an increase in import prices can lead to a deterioration in this ratio. Factors such as declining commodity prices and rising oil prices have contributed to this negative trend, signaling potential challenges ahead for South Africa's trade balance. Looking ahead, Molemoeng emphasized that the outlook for the terms of trade will depend on various factors, including commodity prices and external market dynamics. With uncertainties surrounding oil prices and commodity price growth, the future trajectory of South Africa's trade balance remains uncertain. Despite the challenges, Molemoeng suggested that the current trends point towards a continued decline in the terms of trade. In conclusion, the recent report from the South African Reserve Bank provides valuable insights into the country's economic performance in the third quarter. While certain sectors like mining have shown resilience, challenges in the trade balance and terms of trade highlight the need for careful monitoring and strategic management of the economy moving forward.