South Africa - Current Account Records Largest Deficit In 4 Years

South Africa's current account recorded its largest deficit in nearly four years in the second quarter of 2012 as exports fell because of subdued external demand that is likely to hit manufacturing throughout the rest of the year.

South African Central Bank Governor Gill Marcus

The central bank also said labour unrest in the mining sector - in particular, fallout from the police shooting of 34 striking miners at a platinum mine last month - might cause economic growth to slump in the third quarter. A 30 percent rise in mining output propped up the economy in the second quarter.

In its latest Quarterly Bulletin, released on Tuesday, the bank said the current account gap widened to 200 billion rand or 6.4 percent of GDP from 4.9 percent in the first quarter, while state spending on wages pushed gross domestic expenditure to 4.7 percent.

Economists had expected a deficit of only 4.7 percent because of record portfolio flows into South Africa's domestic debt market ahead of its inclusion in the prestigious Citi World Government Bond Index (WGBI) on October 1.

Bond yields have hit a string of record lows since the WGBI inclusion was announced in April, with index-tracking investors forced to increase their holdings of South African debt.

Economists said these flows could not fund the deficit forever, suggesting the rand was vulnerable if global appetite for emerging market assets switched.

"This is an unsustainable current account deficit," said Kevin Lings, chief economist at Stanlib.

"What is bailing us out is our inclusion in the Global Bond Index, which has resulted in the massive inflows into our bond market. We will still end up with a record inflow into the bond market and that is what is helping us to finance this."

The rand eased after the data, hitting 8.2225 at 0915 GMT from 8.21 moments before the release.