Mariam Isa
1 July 2008
Johannesburg — SA's trade deficit narrowed unexpectedly to R1,7bn in May as oil and capital imports plunged, helping the rand to extend its gains against the dollar.
The shortfall shrank from R10bn in April as imports fell by 12% and exports edged up, easing concerns about the ballooning deficit on the current account, the broadest measure of trade in goods and services.
The rand firmed by more than 1% to R7,80 against the dollar after news of the deficit, which was well below forecasts for a R7bn-R7,5bn shortfall.
"The rand has been shrugging off negative news and the market jumped at the opportunity," said Citigroup senior dealer Julian Wilson. He sees the unit extending its gains to near R7,70/dollar in the short term.
But trade figures from the South African Revenue Service (SARS) are volatile. In the year to date, the trade deficit widened to R33,7bn, compared with R24,5bn last year.
Imports of mineral products, which are dominated by oil, dived by R4,6bn or 27% in May, the data showed. Goldman Sachs economist Ashok Bhundia said this was because SA's oil exports to the region fell while inventories of crude oil and refined products rose sharply.
"We continue to see oil imports weighing on the trade deficit as world prices stay high and diesel demand remains strong." He predicted SA's trade deficit in goods to rise to 2,8% of gross domestic product (GDP) this year from 2% last year .
Imports of capital equipment -- which has been buoyed by an official infrastructure spending programme -- also fell sharply in May, SARS said.
But compared with the same month last year, exports climbed by nearly 29% and imports by 30%.
"Exports will continue to benefit from strong growth in Asia and high commodity prices," Nedbank economist Dennis Dykes said.
He said power constraints and weak infrastructure would limit the extent to which SA's mining firms could respond to robust global demand.
Minerals accounted for more than half SA's exports, so import growth was likely to keep the upper hand as imports of capital equipment climb.
The trend has fuelled concern over the financing of SA's current account deficit, which widened to 9% of GDP in the first quarter of this year .
So far portfolio inflows into local equities and bonds have covered the shortfall, but they have abated this year, mainly due to global risk aversion.
If the gap is not financed by capital inflows, it will put heavy pressure on the rand to weaken, but that seems unlikely given the currency's recent resilience.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
