Net exports and the current account

8 May 2019

Exports grew by 3% in the second quarter of 2016 compared with the same period in 2015, supported by manufacturing and mining exports, particularly platinum group metals. The first half of the year saw a two percentage point decline in the share of exports to African markets compared with the same period in 2015, reflecting weaker economic conditions in the region.

In recent years, despite the large and sustained depreciation in the value of the rand, South Africa has not experienced strong export growth. Since 2010, the real effective exchange rate has depreciated by 20.9%. Yet the main factor in export growth is global demand, which has been moderate. A one-percentage-point increase in global demand could add as much as 0.3 percentage points to medium-term growth.

Soft domestic demand was reflected in the decreased volume of imports, which fell by 3.1% in the first half of the year compared with the same period in 2015. Notable exceptions included vegetable products, oils and fats, where increases of between 43 and 60 per cent reflected the effects of the drought. Over the medium term, improved domestic demand should support import growth, but the weaker currency will limit the expansion of volumes. Imports are expected to contract in the current year and grow by 2.7% in 2017.

The current account deficit narrowed in the second quarter as net exports increased and the trade account recorded a surplus, despite some weakening of the terms of trade. The deficit was funded through an increase in net portfolio investment, mainly into government bonds, and a rise in net foreign direct investment. Over the next three years, the current account deficit is expected to average 3.9%, down from an average of 5.2% between 2013 and 2015. The forecast does not project any major gains in the terms of trade.