In October 2011, South Africa’s trade balance recorded a much larger than expected deficit of R9.6bn. This was well above expectations for a deficit of R2.0bn, although the survey was based on a very small sample size. This is the largest trade deficit South Africa has recorded since January 2009, although the data is extremely erratic from month-to-month.
During the month, the value of exports slumped by a disappointing 9.7%m/m to R61.19bn (down a massive R6.578 billion in the month). In contrast, imports rose by a substantial 8.5%m/m to R70.77bn (up a significant R5.514 billion in the month).
The increase in imports was mainly due to mineral products (oil), up R1.726 billion, base metal (up R0.996 billion), vehicles (up R0.744 billion), machinery and equipment (up R0.713 billion) and vehicle components (up R0.583 billion). On the exports side, there was a significant decline in precious metal exports (down R4.834 billion), as well as exports of chemicals (down R1.696 billion).
The SA trade data remains extremely volatile month-by-month and hard to interpret without looking at the overall trend. On a trend basis, the trade balance moved from a persistent and large deficit in 2006 to 2009 to a more regular trade surplus in 2009/2010 (especially during the recession phase and the early part of the economic recovery). However, in recent months, the trade balance has reverted back to more regular deficits. In general, as economic activity picks-up, imports tend to rise. This is especially the case if there is a more rigorous increase in fixed investment activity (resulting in a strong rise in machinery and equipment imports).
Looking forward, SA’s import demand is likely to rise as the economic recovery continues. However, because the recovery is not especially focused on fixed investment spending, the increase in imports should be reasonably well contained. Unfortunately, given the sluggish nature of the world economy (including the recent fall-off in global commodity prices), South Africa is going to struggle to maintain is recent export performance; despite the somewhat weaker Rand.
The combination of increased imports and sluggish export growth implies that South Africa’s trade balance is likely to record a deficit on a more regular basis. Crucially, while the increase in the trade deficit will dampen GDP growth estimates, we don’t expect that the deficit will reach the levels recorded in 2007, on a sustained basis. This implies that the deficit on the current account should experience some increased pressure over the coming 12 months; but the deterioration should remain manageable (less than 5% of GDP) and relatively easily finance through the capital account.
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