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  • Emerging Markets Debt Daily

    South Africa – Silver Lining to Low Growth

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    March 05, 2020

    South Africa’s current account deficit narrowed sharply amidst weakening GDP growth. Philippine inflation surprised to the downside, opening the door for more rate cuts.

    South Africa’s GDP growth looks extremely underwhelming, but at least it has a silver lining as the country’s current account balance started to adjust again. The fourth quarter 2019 deficit narrowed much more than expected—to a mere 1.3% of GDP. Visually, the correction looks really good (see the chart below), albeit we are always on the lookout for one-offs and “bulky items”. Fundamentally, the improvement should translate into stronger support for the rand (and a bit less of a headache for authorities as regards the size of South Africa’s overall funding gap). 

    Softer inflation in the Philippines should allow the central bank (BSP) to bring forward interest rate cuts in order to shield the economy from the impact of the coronavirus. Headline inflation eased more than expected last month (to 2.6% year-on-year) and many analysts now believe that the BSP will pull the trigger again in March, after a preemptive cut in February. With headline inflation that low, the real policy rate remains positive, giving monetary authorities extra room to act. 

    With less than a week left before the scheduled Eurobond payment, things in Lebanon took a dramatic turn. According to news reports, the prosecutor decided to freeze assets of 20 Lebanese banks (some of which were questioned earlier this week about the transfer of USD2B+ outside the country). The government said that the decision on whether to repay the bonds will be made on Saturday, but several political parties made it clear that they object to making the payment. 

    Chart at a Glance: A Sharp Correction in South Africa's Current Account Deficit

    Chart at a Glance: A Sharp Correction in South Africa's Current Account Deficit

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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