Morgan Stanley: South African balance of payments boosted by SWC

Written by Will Peters Monday, 27 September 2010 11:55

It is hardly surprising that the trade-weighted South African Rand was some 4.5% stronger in the year to 2Q says Morgan Stanley.

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The South African Reserve Bank released its September 2010 Quarterly Bulletin on September 22, with details on the balance of payments and the demand side of the economy.

The current account balance surprised markets to the upside in 2Q10, coming in at just -2.5% of GDP, versus consensus expectations of -3.2%.

Morgan Stanley forecasters had set their target at -3.0%.

In a note released today, economic analysts at the investment banks say that the improvement in the South African balance of payments, from -4.6% in 1Q10, was largely driven by a surplus on the visible trade balance and World Cup-related inflows.

"Although the real surprise for us was the buoyancy of non-World Cup-related tourist activity. Smaller net transfer payments to the SACU free trade community trimmed the deficit too," say Michael Kafe and Andrea Masia, co-authors of the note.

The current account deficit was financed by a R31.7 billion surplus on the financial account of the balance of payments, resulting in a widening of the basic balance to R16.2 billion.

"In the face of such a surplus, it is hardly surprising that the trade-weighted South African Rand was some 4.5% stronger in the year to 2Q," says Morgan Stanley.

The Bulletin also provides a detailed breakdown of the demand side of the economy.

Household consumption held up pretty well on account of World Cup-related spending, employment gains in 2Q10, significant above-inflation wage rewards, and a lower debt service cost.

Notably, private fixed investment turned positive for the first time since 4Q08, supporting the already buoyant rate of public sector capital outlays.