The numbers and the swing
South Africa's broad external balance flipped hard in the second quarter. The South African Reserve Bank put the shortfall at 2.6% of GDP, or 205.5 billion rand, equal to $12.8 billion. That reverses a 2.3% surplus the quarter before and is the widest quarterly deficit share of GDP since Q3 2019. Economists expected something far smaller, with a median call of 1.3% of GDP.
The rand also softened, losing 0.8% against the dollar to just under 16.18 by 2:58 p.m. local time.
Trade details and what moved the balance
The key driver was a much thinner trade buffer. The goods trade surplus came in at 146.4 billion rand, down sharply versus 428.8 billion rand recorded in the first quarter, because merchandise imports rose faster than merchandise plus gold exports.
Export values for goods and services rose by 92.3 billion rand on the back of higher prices and larger volumes. Import values jumped by 376.6 billion rand, reflecting increases in both quantities and prices.
Oil, the Iran war, and shipping
A spike in global fuel costs tied to supply worries from the Iran war did much of the damage, according to the central bank. The value of crude oil brought into the country leapt 82%, even though the physical volume increased only 1.8%.
This was the first full quarter to show the impact of the conflict, which started on Feb. 28 after the US and Israel attacked the Islamic Republic. By constraining traffic in the Strait of Hormuz - an essential sea lane - the clashes have driven up prices for oil and fertilizer.
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Nedbank Group Ltd. Economic Unit cautioned that strains will likely persist, writing: "Looking ahead, the current account is expected to remain under pressure as the external environment remains highly uncertain," and adding, "Renewed escalation in US-Iran conflict, together with ongoing disruptions to shipping through the Strait of Hormuz, have pushed oil prices back above $100 per barrel, with little indication of a near-term resolution."
The wider economy and what it means for your portfolio
Another data point this week underscored the hit: GDP contracted 0.2% in the quarter ending June, snapping a six-quarter growth run that exports had helped support. South Africa's terms of trade worsened over the same period as the rand price of imports climbed faster than the rand price of exports.
On the services, income and current transfers account, the shortfall expanded to 351.9 billion rand, compared with 247.2 billion rand previously. As a share of GDP, the shortfall climbed to 4.5%, compared with 3.1% in the first quarter, the highest level since Q2 2022. For everyday investors, this mix - a weaker currency, pricier energy and a thinner trade cushion - can filter through to companies tied to imports, shipping and fuel, and to how far your rand stretches.
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