Trade surplus widens in March due to surge in minerals exports

Weaker corporate credit demand dampens private sector credit demand

SOUTH Africa’s trade surplus widened in March due to a surge in exports, while growth in private sector credit extension moderated on the back of weaker corporate credit demand.

The South African Reserve Bank (Sarb) reported on Friday that the merchandise trade balance recorded a surplus of R11.44 billion last month from a revised trade surplus of 4.79bn.

Sarb said exports of mineral products, which include iron ore and coal, increased by R1.7bn during the period. Shipments of precious metals and stones, which include gold and diamonds, increased by R4.2bn. However imports of textiles decreased R640 million, while of vehicles and transport equipment increased by R2.9bn.

An economist at NKC African Economic, Gerrit van Rooyen, said while monthly trade statistics were notoriously volatile, early indications for this year were positive.

“Export growth is supported by a moderate recovery in South Africa’s major trading partners and higher commodity prices, whereas the sluggish economy is keeping a lid on import growth – both developments playing into an improved trade balance, which will also have a positive impact on the current account… we forecast a current account deficit of 3.7 percent of gross domestic product (GDP) this year compared to a 3.3 percent of GDP deficit in 2016,” Van Rooyen said.

South Africa posted a trade

surplus of R 3.5bn in March, compared to R1.6bn in February. However, data from the central bank said private sector credit extension growth moderated to 4.95 percent year on year in March from 5.29 percent year on year in the previous month.

South African households increased their loans by R3.7bn, compared to a monthly increase of R7.4bn in February, while the corporate sector increased loans by a R16bn following a monthly increase of R27.5bn in February.

Credit growth extended to the domestic private sector, reaching a peak of 10.2 percent year on year in December 2015, averaging 6.9 percent last year. However, it has been on a downward trend ever since.

Investec economist Kamilla Kaplan said the constrained credit growth in the private sector was due to poor business and consumer confidence.

“A credit fuelled recovery in economic growth is not expected for as long as business and consumer confidence levels remain depressed.

“As such, meaningful demand led inflationary pressures should remain absent. This combined with the dissipation of supply side inflationary pressures over the course of 2017 should see inflation return to the 3 to 6 percent target range,” Kaplan said.

The latest Financial Services Index for the first quarter of this year showed that retail banks adopted an easier stance with regard to credit standards applied to both households and corporates, with credit criteria for corporates remaining easier than for households.

The Africa economist at Capital Economics, John Ashbourne, said the available activity data suggested that the economy was in pretty weak shape in February, with mining, manufacturing, and retail sectors all having contracted but expected green shots to filter in.

“We expect price pressures will continue to ease and headline inflation to re-enter the Reserve Bank’s target range in April. The next interest rate move is more likely to be a cut than a hike,” Ashbourne said.