June 21, 2018 / 8:28 AM / 5 months ago

UPDATE 2-South Africa's Q1 current account deficit widens, weakening rand

* Rand extends losses on news of wider deficit

* Decline in the value of mining exports widens deficit

* South Africa hit by string of poor data (Adds central bank details, analysts)

By Olivia Kumwenda-Mtambo

PRETORIA, June 21 (Reuters) - South Africa’s current account deficit registered its largest shortfall in two years in the first quarter as the trade balance swung to a deficit after a steep decline in exports, the central bank said on Thursday.

Investor sentiment in South Africa picked up after President Cyril Ramaphosa pledged to clean up poor governance that critics say beset the administration of his predecessor Jacob Zuma.

But a string of poor data, including the worst quarterly GDP contraction in nine years in the first quarter, has raised concerns over the recovery. The rand fell further in response to news of the widening deficit.

The South African Reserve Bank said in its quarterly bulletin the current account deficit widened to 4.8 percent of gross domestic product in the first quarter from 2.9 percent in the fourth quarter of last year.

The deficit was the largest since the first quarter of 2016 and wider than the average forecast by economists surveyed by Reuters, who had expected it at 3.8 percent of GDP.

The quarterly trade balance swung to a deficit of 25 billion rand ($2 billion) from a surplus of 74 billion rand as the value of exports fell sharply, the central bank said.

“The value of merchandise exports was affected by both lower export volumes and lower rand prices as the external value of the rand strengthened,” the bank said.

“A marked decline in the value of mining exports in the first quarter, weighed down by the decrease in the rand price of mining commodities, contributed most to the decrease in the total value of merchandise exports.”

RAND WOES

The rand extended its losses to the dollar on the deficit data, trading at 13.7700 at 0854 GMT from 13.6875.

Stanlib chief economist Kevin Lings said the key factor was the deterioration in exports particularly in mining. He also warned the continuing U.S.-China trade war meant South Africa’s exports would continue to struggle throughout 2018.

“It’s a shocker,” Lings said. “It also spells trouble for the rand. If you look at other emerging markets it is those with wide current account deficits that have struggling currencies, so the currency is very vulnerable.”

Isaac Matshego, senior economist at Nedbank, said although the mining sector had for a long time faced numerous pressures, it did not reflect the state of the whole economy.

He also said portfolio outflows in South African assets should also stabilise in the latter part of the year, arguing that the U.S.-China trade war would be resolved in negotiations.

“We’re seeing turnaround in other sectors like manufacturing and retail and this should drive a narrower deficit by year-end closer to 3 percent driven by non-mining exports,” he said. ($1 = 13.7177 rand) (Additional reporting by Mfuneko Toyana in Johannesburg Editing by James Macharia and Alison Williams)

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