South Africa's Current-Account Deficit Narrows on Improved Trade and Investment Inflows

South Africa's current-account deficit unexpectedly narrowed in the third quarter of 2025, surprising economists who had predicted a larger shortfall. The deficit stood at 57 billion rand, or 0.7% of gross domestic product, down from a revised 1% in the previous quarter. This marked the eighth consecutive quarter of a current-account deficit, the longest stretch since 2019. The improvement came as the nation's terms of trade slightly improved, particularly for non-gold exports.

The narrowing was driven by a smaller shortfall in the services, income, and current transfer account, which fell to 235.3 billion rand from 259.4 billion rand. . South Africa also saw a modest improvement in its primary-income account, which plays a key role in the overall balance. The trade surplus, while still positive, declined to 178.3 billion rand from 187.2 billion rand as the value of imports outpaced that of exports.

Higher imports of refined petroleum products and crude oil were cited as the main contributors to the shrinking trade surplus. Despite the overall current-account improvement, the nation has not posted a surplus since 2021. The latest reading suggests some tentative progress in reducing the deficit, but structural challenges remain, particularly in the services and income accounts.

Reasons Behind the Narrowing

The improvement in the current-account deficit was attributed to a favorable shift in South Africa's terms of trade. Exports of goods and services rose in rand terms more than the cost of imports, which helped narrow the overall gap. Gold remained a key export, but the more significant gain came from non-gold-related exports. The South African Reserve Bank noted that this improvement in terms of trade reflected a stronger domestic currency and higher global demand for South African exports in select sectors.

The primary-income account, which includes income from investments and employment abroad, also played a role. The shortfall in this component of the current account decreased, contributing to the overall improvement in the balance of payments. While the services and current transfer deficits widened, the reduced income account deficit offset those losses according to data.

Broader Economic Context

The current-account data arrives as South Africa posted 0.5% growth in the third quarter of 2025, matching economist forecasts. Annual GDP growth stood at 2.1%, slightly higher than the 1.8% that had been predicted. The economy remains constrained by logistical bottlenecks and energy supply issues, but signs of gradual recovery are evident according to research.

The government has been working to diversify the economy beyond its reliance on gold and other commodities, a move that could help reduce the current-account deficit over time. However, the country faces ongoing challenges, including high public debt and a large fiscal deficit that has widened in recent years. These factors limit the room for economic maneuverability, especially in the event of external shocks such as falling commodity prices or a global economic slowdown.

Risks to the Outlook

Despite the recent improvement, South Africa's external position remains fragile. The country continues to post a moderate current-account deficit, and the trend is expected to widen as the economy recovers and domestic demand increases. This could put downward pressure on the South African rand, especially if global financial conditions tighten or if the U.S. dollar strengthens.

Another risk lies in the structural vulnerabilities of the economy. High unemployment, persistent inequality, and a weak industrial base remain impediments to long-term growth. Structural reforms in energy and logistics are still in progress, and their effectiveness in boosting competitiveness remains to be seen. Meanwhile, external factors, such as U.S. tariffs on South African goods and rising trade protectionism, could further strain the balance of payments according to analysis.

South Africa's ability to manage its current-account deficit will also depend on its success in attracting foreign direct investment and improving its business environment. While there have been some improvements in investor sentiment, the economy still faces skepticism from credit rating agencies, which continue to classify South Africa's debt as speculative grade.