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Thursday, September 4, 2008

South Africa's Current Account Deficit Slightly Lower In Q2 2008

South Africa's current account deficit narrowed to 7.3 percent of gross domestic product in the second quarter as power outages eased, boosting gold and platinum exports. The deficit shrank from a revised 8.9 percent of GDP in Q1, according to data from the Pretoria-based Reserve Bank.

Electricity supply stabilized in the second quarter after power outages forced mines to shut for five days in January, enabling a rebound in exports. Imports also gained as the government stepped up spending on stadiums, roads and power plants, keeping the deficit above 7 percent for a fourth consecutive quarter.

The deficit narrowed to an annualized 164.4 billion rand ($20.9 billion) in the second quarter from 194.6 billion rand in the previous three months.

South Africa relies mainly on foreign investment in stocks and bonds to fund its import needs, inflows that began to dry up in the fourth quarter as investors sold riskier, emerging market assets. The rand has fallen 13 percent against the dollar this year on concern South Africa will struggle to finance the deficit.

The country recorded an inflow of portfolio investment of 27.3 billion rand in the second quarter, compared with an outflow of 19.1 billion rand in the previous three months, the central bank said. The deficit has widened in the past two years as the government boosted spending on road, rail and power infrastructure in preparation for hosting the 2010 FIFA World Cup. About 40 percent of the equipment needed for the 568 billion rand infrastructure program will need to be imported, according to government estimates. The government expects the deficit to reach 7.9 percent of GDP in 2009 and 8 percent in 2010, compared with an estimated 7.3 percent this year.

Export volumes rose an annualized 12.2 percent in the second quarter after dropping 7.2 percent in the first three months of the year, the central bank said. Higher gold and platinum prices helped to boost the value of exports by 20 percent to an annualized 682.1 billion rand in the second quarter. Imports rose 12 percent to an annualized 760.9 billion rand in the same period, the central bank said.

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