December 8, 2015 / 11:01 AM / 4 years ago

UPDATE 2-South Africa's current account deficit widens, threatening rand

* Rand extends losses to record low against dollar

* Imports rise more than exports in third quarter

* Current account gap largely in line with forecasts (Updates with rand at record lows, analyst comment)

By Stella Mapenzauswa

PRETORIA, Dec 8 (Reuters) - South Africa’s current account deficit widened sharply in the third quarter of this year, central bank data showed on Tuesday, signaling further pressure on the rand currency as markets brace for higher U.S. interest rates.

The current account gap has traditionally been partly financed by portfolio inflows, but these have waned this year as investors expecting the U.S. Federal Reserve to start tightening monetary policy dumped emerging markets.

The shortfall expanded to 4.1 percent of GDP in the third quarter from 3.1 percent in the second, the South African Reserve Bank said in its December quarterly bulletin. This is the first time in five quarters that it has widened.

Economists polled by Reuters had reached consensus on a 4 percent deficit in the third quarter.

The rand, which has weakened more than 20 percent against the dollar this year, hit a new record low of 14.6150 after the central bank report.

“Should the U.S. rate hiking cycle trigger marked shifts in capital flows away from South Africa, (the rand ) could be in for further losses,” NKC African Economics analyst Bart Stemmet said.

“South Africa’s structural current account shortfall is expected to remain a concern over the medium term amid the new normal of low-trending commodity prices.”

The wider current account gap is the latest bad news for the economy after Fitch last Friday cut South Africa’s sovereign credit rating by one notch to BBB-, the lowest investment grade category.

Standard & Poor’s kept its own BBB- rating, but changed the outlook to negative from stable.

On Tuesday, the central bank said South Africa’s imports rose more strongly than exports during the third quarter, leading to a 14 billion rand ($960 million) shortfall in the trade balance following a surplus of the same margin previously.

Investment into local stocks and debt had tapered off sharply to 11.8 billion rand in Q3 from 54.8 billion rand in the prior quarter, it said.

“Non-resident investment in South African equity and debt securities was more than offset by the acquisition of foreign portfolio assets by South African investors,” the bank added.

Spending in the economy, which narrowly avoided a recession in the third quarter and is expected to grow just 1.5 percent in 2015, ticked up by 0.8 percent after contracting by 7.2 percent in quarter two.

Government spending rose at a slightly faster pace, offsetting a moderation in household spending growth due to a slowdown in real income expansion, and persistently low consumer confidence levels.

Editing by Jermey Gaunt

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