Mariam Isa
1 July 2009
Johannesburg — SA's trade balance swung back into surplus for the first time in two- and-a-half years in May, official data showed yesterday, prompting a 2% rand rally to a 10-month peak.
Imports fell 6,35% and exports rose nearly 2%, leading to a surprise surplus of R2 bn, the South African Revenue Service (SARS) said.
The news backed the view that SA's trade deficit is on a narrowing trend, good news for the rand as a large shortfall normally puts pressure on currencies to weaken, to help exports recover.
The trend should also lead to an improvement this year in the deficit on the current account, seen as the Achilles heel of the economy, and the volatile rand.
The rand firmed to R7,67/ -- its strongest level since the end of August last year -- before retracing to R7,74/ , still 1% up on the day.
Market forecasts had predicted the trade deficit would widen to R2bn in May from April's shortfall of R1,5bn, but the monthly figures are notoriously volatile.
Cumulative data for the first five months of the year showed exports fell 14,7% and imports 18% in response to the economy's slump.
"This has led to a very noticeable and welcome improvement in SA's trade balance," said Stanlib economist Kevin Lings.
"This improvement is likely to be sustained during 2009, given that the South African economy is now firmly in recession."
The current account shortfall reached 7,4% of gross domestic product (GDP) last year, a 36-year peak. SA relies on foreign purchases of local shares and bonds to finance the deficit, which makes the rand vulnerable to swings in global risk appetite.
The current account deficit is expected to shrink to about 6% of GDP this year, but that would still be uncomfortably high compared with most other emerging markets.
Rand Merchant Bank said that although the surplus was a pleasant surprise it was wary about the trend, given rising oil prices, which could push up the cost of imports.
Global oil prices have rebounded nearly 60% so far this year, pushing up the cost of domestic fuel and fanning inflation, which keeps interest rates from falling further.
That in turn is bad news for the economy, which shrank 6,4% in the first quarter -- its steepest contraction in 25 years -- as SA joined the global recession.
The issue is whether imports will recede faster than exports, which collapsed in response to waning global and local demand. Exports account for about a third of SA's economic output.
"This trade surplus is encouraging ... but is not likely to prove sustainable," said Nedbank economist Isaac Matshego.
Global economic developments were crucial, and signs of a slowdown in the rate of decline in big industrial economies suggested that global exports could pick up towards the year-end, he said.
"However, we still expect weak domestic spending to contain import volumes, while the global recession should limit increases in key import prices," he said.
Yesterday's data showed there was a R600m rise in vegetable exports, mainly into the rest of Africa, during May. Vehicle
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exports rose by R1bn, a surprise, given that the industry is in distress in SA and abroad.
On the import side, machinery fell by R1,3bn, vehicles and parts by R640m and base metals by R600m.
That backs evidence that private investment is waning as SA's manufacturing sector, the economy's second-biggest, shrinks at a record pace.
Lings noted that SA's trade deficit came to an average R4,4bn over each of the past 12 months. That compares with an average shortfall of R5,6bn last year and R5,7bn in 2007.
"Ultimately this will reflect in an improved current account deficit during the remainder of 2009," he said.
In the first quarter of this year, SA's current account gap jumped to 7% of GDP from 5,8% in the previous quarter, mainly due to deteriorating terms of trade. The nontrade balance is expected to improve as outflows from dividend payments slow, in line with receding corporate profits.
Compared with the same month last year, SA's imports plunged 32% and exports 26,3%. SA's economy is expected to shrink 1,5%-2% this year, marking its first recession in 17 years.
The infrastructure spending programme will help growth from contracting more sharply and is also likely to support demand for imports.
But the fall in domestic demand, which accounts for two-thirds of SA's economy, will help keep a lid on the pace of imports.
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