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Wider deficit and slower spending show economic anaemia worsened
Wider deficit and slower spending show economic anaemia worsened

Wider deficit and slower spending show economic anaemia worsened

ECONOMIC NEWS

Business Day Live - Jun 15th 2016, 11:49

The need to speed up economic growth was emphasised on Tuesday, when Reserve Bank figures showed more woes in the first quarter — the current account deficit widened more than expected, and private sector and household spending shrank. 

Higher economic growth, smaller current account and budget deficits, and policy certainty are among the factors ratings agencies have identified as crucial to SA avoiding a downgrade.

The rand fell slightly on news that the current account shortfall widened to 5% of GDP in the first quarter of 2016 from a downward revised 4.6% (5.1%) shortfall in the previous quarter.

The deficit grew because SA paid more dividends to foreigners for their local investments than it received from its investments abroad. This outweighed an improvement in the trade balance attributable to better exports and slower growth in imports. Dividend and interest outflows from SA were likely to remain substantial given large foreign holdings of South African bonds and equities, Stanlib chief economist Kevin Lings said.

Economic growth in SA was likely to remain under pressure "as the political situation prevents the reforms necessary to boost confidence", Bank of America Merrill Lynch economists Oyin Anubi and Arko Sen said in a research note.

They expect S&P Global Ratings to downgrade SA’s foreign currency credit rating in December.
The Bank also commented on uncertainty, saying "lacklustre domestic economic growth and political uncertainty" had added to investors’ risk aversion.

The good news was the recovery in travel receipts, which rose 9% to R120.3bn because of the weaker rand and relaxed visa rules. Spending on fixed capital formation by the private sector contracted 6.8% while that by the government slowed to 1%.

"I think private sector investment will probably contract for the year but public-sector investment, we hope, will pick up, because we still have the big programmes, such as Medupi and Kusile, which should drive investment," Nedbank chief economist Dennis Dykes said.From Business Day Live 

Read more about: stanlib | south africa | s&p | reserve bank

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