Given the outlook for continued strong investment over the next few years, it appears that South Africa’s trade balance is sustainable going forward at about current levels, said global analysts Lehman Brothers on Monday. However, they do expect the current high trade imports to affect the current-account deficit.
The cumulative trade deficit so far this year amounts to R39,728-billion, which is only a little higher than the R36,172-billion at the same time last year.
“Once again the trade deficit has apparently shocked everyone. Exports were down only a touch on the month to R42,1-billion, with imports driving the balance lower — increasing some 8% month-on-month to R51,5-billion.
“Exports of metals and gems were softer for yet another month as high commodity prices and a strong rand hurt international demand, though strikes in the mining sector would not have helped either,” explained the market analysts.
“The increase in imports appears to be mainly driven by growth in investment goods with companies taking advantage of the strong rand during the first half of July and importing large items of machinery for factories and offices. In addition, the value of imports of raw construction materials was high owing to international prices of steel and related items,” they added.
“Given the outlook for continued strong investment over the next few years, it does appear that the balance is sustainable going forward at about current levels, and indeed we have always seen more pessimistic numbers going forward anyway. The number should affect the Q3 current-account balance, given that historically it accounts for just over one-third of the total,” concluded the analysts.
A trade deficit of R9,4-billion was announced on Friday after the R5,3-billion deficit in June, but this was ahead of market expectations of R4,5-billion. South Africa recorded its worst yet deficit in October 2006 of R12,943-billion.
A R67,1-billion deficit was recorded for 2006 from a R22-billion deficit in 2005.
As a percentage of GDP, the current-account deficit was recorded at 7% in the first quarter from an unrevised 7,8% in the fourth quarter.
The deficit above 7% of GDP is, however, regarded as being too high and a concern on the inflation front as it indicates the country is consuming far more than it is producing. — I-Net Bridge