SA trade goes from surplus to deficit

SUBDUED economic activity has led to South Africa’s trade balance swinging to a deficit in August after three months of surpluses as the shipment of precious metals and stones, which include gold and diamonds, slumped.

Exports decreased 5.5 percent to R90.235 billion on a month-to-month basis, while imports rose to 9.2 percent to R98.736bn. Market expectations were for a trade surplus of R3bn for August.

The R8.6bn deficit compares with revised surplus of R5bn in July, the SA Revenue Service said on Friday.

South Africa recorded its first quarterly trade surplus in a year in the three months to June as mining exports surged, helping to narrow the deficit on the current account, the broadest measure of goods and services, to 3.1 percent of gross domestic product (GDP) from 5.3 percent.

Nedbank said global conditions remained lacklustre, which together with low commodity prices, would hamper export performance in the short term.

Rand weakness “However, the rand’s weakness has been supportive, with a trade surplus recorded in the second quarter of 2016. Import growth is also likely to be modest as household demand will be hurt by weak confidence, as well as high inflation and debt service costs. Imports of capital equipment will also remain weak as the private sector remains cautious about committing to large expansion projects given the challenging operating environment on the back of high input costs and weak demand.”

While the rand could benefit from the smaller current account shortfall, the currency’s 11 percent gain against the dollar this year could reduce demand for South African products abroad.

“The export growth momentum experienced by South Africa is at risk of not being sustained in the coming quarters,” Kamilla Kaplan, an economist at Investec, said.

South Africa’s cumulative surplus for the first eight months of 2016 is R7.4bn compared with a shortfall of R35.1bn during the same period in 2015.

Peter Attard Montalto, an emerging markets analyst at Nomura, said he thought the third quarter would be weaker than the second quarter on numerous indicators, including growth and external balances.

He said the August trade balance data showed that the export slowdown had already hit more than expected, though import growth was also stronger than expected.

“The implications of the wider trade deficit for the current account, which is largely made up of the income balance is to widen the current account deficit to minus 4 percent of GDP for the third quarter and deteriorate from there. Broadly, we therefore believe the second quarter was not the trend, but a one-off on various fronts.”

Paul Sirani, the chief market analyst at Xtrade, said to add to South Africa’s trade woes, the UK’s decision to leave the EU was likely to have a further adverse effect on the country’s exports when Brexit came into full effect.

The country recorded a budget deficit of R16.7bn in August, Treasury data showed on Friday. – Additional reporting by Bloomberg