SARB Quarterly Bulletin consistent with economy in recovery mode

With a 3-month lag, the data contained in the Reserve Bank’s Quarterly Bulletin, which represents the expenditure side of the economy, is a little bit long in the tooth. Nevertheless it shows an expenditure pattern that is consistent with an economy that is recovering.

Driving this recovery in expenditure is the fact that the decline in inventories is slowing sharply. This will continue to be the driver of growth for the foreseeable future as businesses begin to restock properly again.

Consumption was a small positive on the quarter and better than the market expected. This is largely the result of the improving trend in vehicle sales, which became evident towards the end of last year.

On the investment side the outcome was also a bit better than expected, with an end to the decline in investment. This was particularly noticeable in respect of private investment.

The current account deficit, at 2.8% of GDP, is surprisingly small. This was primarily driven by an improvement in the merchandise balance, which in turn was caused by an improvement in South Africa’s terms of trade. In the latter half of last year, the prices of our exports rose more sharply than import prices.

In addition to the improving merchandise balance, the current account yet again benefited from a steadily improving income balance, largely a reflection of declining dividend outflows.

The capital account was again strong on the quarter, and more than sufficient to cover the current account deficit. This is largely due to the unusually large equity portfolio investments we saw in the second half of last year. This trend has continued and is the main reason why the Rand has remained strong.