Trade deficit: 'SA is now officially in trouble'

South Africa’s monthly trade deficit jumped to a record R14,73-billion in October, compared to September’s R4,3-billion shortfall, the South African Revenue Service said on Friday.

Economists polled by Reuters last week had forecast a deficit of R6,8-billion.

Compared with the previous month, exports rose by 4,3% while imports increased by 27,4% on a doubling in oil imports, partly due to increased shipments and higher prices.

The cumulative trade deficit for the first 10 months of the year was R70,1-billion compared to R55,3-billion during the same period last year.

Dawie Roodt, an economist at Efficient Group said: “Last month’s figure was much smaller than the average R8-billion or so, so this may be an overflow. This is a very volatile number so we should not put too much emphasis on one month’s figure, but rather look at three months. The market won’t respond much, we may only see a little weakness in the currency.”

Razia Khan, an economist at Standard Chartered Bank said it was an “awful figure”.

“As we suspected, oil imports appear to be responsible for the blowout in the trade deficit.
This is not good news for the Q4 current account deficit, and could become a more pronounced negative for the ZAR if concerns about the availability of financial inflows to service the deficit become paramount.

“For now, however, taking into account the mood of the market, we expect it to be only a short-lived negative for the ZAR. The trade balance does not usually have much of a market impact, but this is an awful, awful print.”

Russel Lamberti, an economist at ETM, said the figure was a shock.

“What it highlights is a strong oil price as well as machinery imports. Certainly on the machinery front, it highlights the infrastructural development that this country is going through. It’s funny that the rand hasn’t moved much, but we expect to see the rand to come off.

“The highlighted structural issues in the economy centres around the fact that we are not exporting as much as we should be and we are relying heavily on imports. We have also imported a lot of oil for the growing economy, which is evidence for a robust economy. This figure is certainly very surprising.”

Mike Schussler, an economist at T-Sec said: “South Africa is now officially in trouble. This will not be good for the rand and strengthens the case for a 100-basis-point hike and indicates that prime might have to go higher than 15%.

“It is also indicative of the supply shortages in the South African economy and I doubt that the trade deficit will go away.” - I-Net Bridge, Reuters

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