Pound weakens against South African Rand on current account data

March 17, 2015 - Written by Tim Boyer

STORY LINK Pound weakens against South African Rand on current account data

The Pound weakened against the South African Rand as concerns over the uncertain outcome of May’s UK general election weighed upon the UK currency. The Rand meanwhile found support from the release of a stronger than forecast current account report.

South Africa’s current account deficit narrowed more than forecast in the final quarter of last year as it was aided by a sharp decline in the trade deficit. According to the data published by the South African Reserve Bank, the nation’s current account deficit narrowed to a seasonally adjusted 5.1% of gross domestic product (GDP).

Economists had been forecasting for a 5.85% deficit to GDP in the fourth quarter. In monetary terms, the current account deficit was ZAR 198.48 billion versus ZAR 222.65 billion in the previous quarter. Economists had expected a shortfall of ZAR 216 billion. A year ago, the deficit was ZAR 194.61 billion.

‘Export volumes benefited from the normalisation of production in the mining and manufacturing sectors, a marginal improvement in the country’s terms of trade, and the more competitive exchange value of the Rand. While the trade deficit with the rest of the world narrowed markedly, this was partly offset by higher net dividend payments to non-resident investors,’ said the central bank.

Increases in the export of platinum, coal and iron ore were the main contributors to the improving export picture. Electricity constraints caused by an aging power grid however saw the export of aluminium and copper fall. The export of manufactured goods also rose in the fourth quarter of 2014, for a second consecutive quarter.

Growth in export volumes, excluding gold, accelerated to 5.3 percent in the three months through December from 2.9 percent in the third quarter, according to the report. Import volumes rose 1.4 percent as economic output slowed, while falling oil prices helped to cut costs.

‘We forecast a current account deficit of 4.5% as a whole in 2015 due to a lower import bill. Improvement in the global economy, less strikes domestically and the weaker Rand exchange rate should also be supporting factors for exports,’ said economist Elize Kruger an economist
at KADD Capital.

The Pound meanwhile fell as it came under pressure from concerns over the outcome of May’s UKgeneral election. With no clear winner expected, economists are growing concerned that the nation’s economic recovery could come under threat.

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