Ayanda Shezi

Economics Correspondent

THE trade account remained in deficit for a third month running in March, as SA’s commodity prices continued to soar and the rand stayed strong. Analysts say the figures suggest the deficit on the current account of the balance of payments may have risen above 5% of gross domestic product (GDP) in the first quarter.

They say trade deficits are likely to persist for most of the year as commodity prices, and oil prices in particular, steam ahead, and government tries to speed up economic growth.

Worries abound as to whether SA will continue to attract enough in capital inflows to reduce its widening current account deficit, and this poses a huge risk for the rand.

The current account, which soared to 4,2% of GDP last year, compared to 3,4% in 2004, is expected to climb higher this year.

The South African Revenue Service released data on Friday showing that the deficit narrowed to R2,78bn in March from R3,9bn in February — the result of a marginally weaker rand.

Although the monthly data is volatile, taken on a three-month view it provides a good indication of where the current account is headed, say analysts.

In March there was increased risk aversion to emerging-market currencies, which resulted in the rand losing about 13c against the dollar and 20c against the euro and the pound.

Exports increased 13% to R29,95bn in the month, while imports rose 8% to R32,82bn.

Standard Bank economist Shireen Darmalingam said that a relatively strong currency and strong domestic demand going forward were likely to continue to buoy imports.

Gold accounts for about 8% of South African exports, and has a positive effect on the trade account.

This may, however, be offset by a higher oil import bill, should oil prices remain at such elevated levels, economists say.

The country’s oil import bill makes up about 14,2% of total imports. Oil prices rose above $74 a barrel last month on geopolitical tension and supply concern. “Should the dollar price of oil continue to soar as oil supply from the world’s major oil producers is threatened, a substantial increase in the rand-denominated value of imports could follow,” Darmalingam says.

If rising oil prices, which bode ill for the inflation outlook, persist together with strong credit growth, the Reserve Bank may have to hike interest rates.

Reserve Bank governor Tito Mboweni said last month developments on the current account of the balance of payments were increasingly worrying for the monetary policy committee.

Other concerns for the committee included surging credit demand and the sharp increase in household debt.