In May 2011, South Africa’s trade balance recorded a deficit of R1.03bn. This is in-line with market expectations.
In April 2011, the trade balance reflected a deficit of R2.4bn and has recorded a deficit in the four of the last five months.
During the month, the value of exports jumped by an encouraging 9.0%m/m, after falling by 14.2%m/m in April, while imports rose by a more modest 6.0%m/m.
The increase in exports, which amounted to R4.6bn during the month, was mainly due to a rise in precious metal exports (+R1.8bn), base metal exports (steel) (+R1.2bn), vegetable exports (R0.6bn) and vehicle exports (+R0.5bn).
On the import side (which rose by R3.2bn in May) vehicle part increased by R0.8bn, while machinery imports rose R0.9bn and base metal imports by R0.8bn.
The 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 from 2006 to 2009, to a more regular trade surplus in 2009/2010. However, as mentioned above, the trade balance has now gone back into deficit, recording a deficit in four of the last five months.
In general, as economic activity picks-up in South Africa, we tend to record trade deficits due to higher imports. 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 intensity is likely to rise as domestic expenditure improves. This implies that the trade balance should experience increased pressure over the coming 12 months. The deterioration, however, might not be all that substantial, given the still relatively sluggish domestic economy, and especially the lack of private sector fixed investment activity. This means that although the trade balance is likely to weaken during the next 12 months, with SA running a more persistent trade deficit, the deterioration should not become alarming.
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