Good news for the rand

South Africa’s current-account shortfall narrowed more than expected in the first quarter as exports increased marginally and imports decreased due to lower demand.

The deficit on the current account, the broadest measure of trade in goods and services, shrank to an annualized 1.2% of gross domestic product, or R84.6 billion, from a revised 2.3% of GDP in the prior quarter, the South African Reserve Bank said in a statement Thursday.

The median estimate of seven economists in a Bloomberg survey was for a gap of 1.6% of GDP.

The annualized trade surplus widened to R183.4 billion from R90.9 billion in the fourth quarter, central bank data show.

Election uncertainty and a contraction in the economy in the quarter weighed on demand for imports.

The slimmer-than-anticipated deficit was also driven by improved terms of trade as the rand price of exported goods and services increased more than that of imports, the Reserve Bank said.

The better-than-expected data may support the rand, which has remained volatile after the African National Congress lost its national majority for the first time since 1994 in the 29 May elections.

Markets favour the ANC aligned with the centrist Democratic Alliance over leftist parties such as the Economic Freedom Fighters or former President Jacob Zuma’s uMkhonto weSizwe Party.

However, the ANC’s working committee recommended to its leaders on Wednesday that they form a government of national unity that would include a range of political parties.

The ANC’s top leadership is currently meeting near Johannesburg.

The country’s eighth consecutive current-account deficit and a consolidated budget shortfall — the Treasury sees the latter at 4.5% of GDP for the current fiscal year — are key risks for South Africa, making it more vulnerable to external shocks.