MARIAM ISA
SA’s trade balance swung dramatically back into the red in October, recording a deficit of R6,7bn, the biggest shortfall since January.
Imports rocketed 22% while exports fell 3,2% during the month, figures from the South African Revenue Service showed yesterday.
The news shocked local markets, briefly weakening the rand, and backed the view that SA’s recovery would be ponderous.
Analysts had predicted a surplus of R200m, after a surplus of R3,9bn in September — which was the biggest in nearly six years.
But the figures, which are notoriously volatile, leave intact the view that SA’s trade balance will continue to improve this year.
During the first 10 months of this year, the cumulative deficit reached R25,2bn — considerably lower than R61,2bn in the corresponding period of last year.
African Harvest economist Adenaan Hardien said that even though the trade numbers may seem shocking, they always deteriorate in the fourth quarter of the year.
In the third quarter of this year, SA had an average trade surplus of R800m compared with an average monthly deficit of R6,4bn in the third quarter of last year, he said.
The slump in exports was more worrying, as it suggested strength in the rand could be taking a toll on the competitiveness of local products in global markets, he said.
“We do not expect exports to rebound strongly in the foreseeable future, with the rand’s relative strength posing a risk to export recovery against the backdrop of a still weak global economy,” said economist Isaac Matshego.
The unit has appreciated by more than 19% on a trade-weighted basis this year, fanning intense debate over whether it is overvalued.
But both the Reserve Bank and the Treasury say market forces will continue to determine the level of the exchange rate — a decision which is widely seen as appropriate.
The decline in exports in October was led by a 21% monthly fall in precious and semiprecious stones and metals. A R3,8bn surge in oil imports dominated the other side of the equation, with machinery and electrical appliances also rising.
Ironically, depressed domestic demand will benefit the economy by keeping a lid on imports, which will be supported by government spending and inventory restocking.
That means that SA’s large deficit on the current account — its broadest measure of trade in goods and services — should shrink this year.
The current account gap — the economy’s Achilles heel — widened to a 36-year peak at 7,4% of gross domestic product (GDP) last year.
“Our expectation for a protracted domestic economic recovery along with depressed domestic demand relative to our key trading partner countries should … bode well for the trade balance in coming months,” said Capital economist Jeffrey Schultz. He sees the current account deficit at just 4,5% of GDP this year, below official estimates of 4,9%.
isam@bdfm.co.za