While South Africa’s trade deficit widened further in March, there are continuing signs of improved export performance, analysts said on Monday.
According to the South African Revenue Service on Monday, South Africa’s trade deficit widened by a further R2,75-billion in March, similar to February’s deficit of R2,66-billion. Export growth remained strong on the month at 13,6%, continuing on from February’s 22,9% month-on-month growth.
“This was mitigated, however, by a resurgence in import growth, which was 12,9% month-on-month in March, following February’s -5,4% decline in imports,” said the analysts.
They pointed out that, as with February, there were large swings on the minerals and machinery and equipment accounts.
“The minerals account was expected to have performed poorly with the rand value of oil imports surging upward on the back of rising oil prices and rand weakness in March.
“The machinery and equipment account was also expected to deteriorate in the face of rand weakness and the strong continuing inelastic demand for capital equipment on the back considerable investment growth at present.
“Notwithstanding this, rand weakness in March seems to have benefited exporters considerably, with the rand value of exports in March increasing by some R5,1-billion on the month, and by about 42% year-on-year, encouragingly outstripping year-on-year growth in imports.
“The magnitude of the oil and capital equipment accounts in relation to the overall trade account currently gives South Africa disproportionate current-account exposure to currency and energy price movements. The price-insensitive demand on both these accounts ensures trade account volatility from month to month, and also accounts for a significant proportion of the overall monthly deficit,” the analysts said.
“Together these accounts deteriorated by some R4-billion on the month in March. The fact that the monthly deficit remained roughly unchanged in March despite the poor performance on these accounts suggests that exporters again did particularly well in their own right in March.
“Last month we said that the machinery and equipment and vehicles and transport equipment accounts currently make up 40% of total imports, clearly indicative of South Africa’s seemingly insatiable demand for equipment to aid capital formation and infrastructure development. With this import structure set to continue for some time to come, and with oil prices remaining stubbornly high, local producers have to increase exports to bring balance to the trade account,” the analysts stated.
They said it will be interesting to see whether exports continued to grow in April with the rand strengthening to levels just below R7 to the dollar.
“If they did, it would signal a degree of fundamental improvement in export performance, and could see April’s monthly deficit move into the black,” concluded the analysts. — I-Net Bridge