SA trade deficit widens to R21.3bn

THE MONTHLY trade balance for October shocked on Friday when it turned out to be the worst on record, underlining warnings from the Reserve Bank that persistent current account and budget deficits along with weak economic growth would make policy decisions harder.

The deficit widened to R21.3 billion compared to market expectations of R6.3 billion and from R3.05 billion in September.

This brought the cumulative deficit for the 10 months in the year up to R95.11 billion from R73.08 billion in the corresponding period last year.

The trade report sent the rand to its lowest level in a week against the dollar, although it was offset by an announcement by the Department of Energy that fuel prices would drop from Wednesday because of falling global oil prices. Exports fell nearly 2 percent in October and imports soared nearly 18 percent.

The data points to continued pressure on the current account, a long standing Achilles heel for the rand that has earned it a place among the “fragile five” currencies, which tend to take the brunt of emerging market sell-offs.

Annabel Bishop, an economist at Investec, said oil remains South Africa’s largest import, and with the capacity to supply electricity from traditional coal-fired power stations dwindling significantly, Eskom has resorted to using oil-fired generators to attempt to supplement electricity supply.

She said the marked increase in the usage of diesel generators has seen oil imports rise rapidly, and the trade deficit widened in October, despite the decline in oil prices.

David Faulkner, an economist at HSBC Securities, said while the monthly trade numbers tended to be volatile, the trade deficit in October was the worst on record, providing early warning signs that the trade balance was likely to keep the current account deficit elevated in the final quarter.

Azar Jammine, the chief economist at Econometrix, said the trade balance did tend to deteriorate in October as imports surge in line with the build-up of inventories across the business sector in preparation for the Christmas spending season.

“Nonetheless, the surge in imports to R110.32 billion, some R15 billion greater than any monthly import figure ever recorded, was well in excess of expectations.” – Additional reporting by Reuters