The SA Reserve Bank (Sarb) said the last deficit on the current account was recorded in Q2, 2020, when the economy collapsed in the face of the initial lockdown to contain Covid. At R87-billion – equal to 1.3% of gross domestic product – the deficit is not crippling and there is no balance of payments crisis looming. 

But the surplus was a significant base of support for the rand. Minutes after the data was released, the rand fell to almost 17.40/dollar, its lowest levels in over two years, from around 17.30/dollar. 

South Africa’s trade surplus remains but it narrowed, the Sarb said, to R272-billion from R372-billion in Q1 “as the value of both merchandise exports and imports increased further to all-time highs. The narrowing of the trade surplus reflected a larger increase in the value of merchandise imports than in the value of goods exports.” 

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The current account and trade surpluses hit record levels last year as the prices of platinum group metals and other commodities South Africa exports scaled record highs. Those prices cooled in Q2, while the price of oil – which is imported – surged in the wake of Russia’s invasion of Ukraine. Oil prices have since come off the boil but remain a clear and present danger to South Africa’s trade profile and domestic inflation. 

“South Africa’s terms of trade (including gold) deteriorated slightly in the second quarter of 2022 as the rand price of imported goods and services increased slightly more than that of exports,” Sarb said. 

It is also no coincidence that the economy contracted in Q2, bringing national output back below pre-pandemic levels. 

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“The shortfall on the services, income and current transfer account widened noticeably to R358-billion in the second quarter of 2022, from R216-billion in the first quarter,” Sarb said.

“The larger deficit stemmed from a considerably wider deficit on the primary income account, largely due to higher dividend payments by companies with a direct investment relationship, along with a slight increase in the deficit on the services account and a smaller deficit on the secondary income account.”

Given its implication for the rand, the data provide Sarb with another arrow in its rate-hiking quiver, which in turn is seen as another constraint to economic growth. 

But a collapsing rand and runaway inflation would also put paid to growth, which is going to be sluggish at best for the rest of the year. DM/BM