SA recorded a further trade surplus in July 2016 of R5.2bn. SA trade account has improved meaningfully, on a trend basis, over the past year, but this largely reflects a slowdown in economic activity

In July 2016, South Africa’s trade balance recorded a further surplus of R5.2 billion. This compares with an impressive trade surplus of R12.5 billion in June 2016 and a massive surplus of R18.3bn in May 2016. The market was expecting a trade surplus of around R8.0 billion, although the trade data is extremely difficult to forecast accurately on a month-by-month basis, especially since the data is not seasonally adjusted and prone to revisions. Over the past three month South Africa has recorded a cumulative trade surplus of R36.0bn, which appears to be the largest trade surplus over any three-month period South Africa have ever recorded.

During the month exports declined by a substantial R9.44 billion, while imports fell by R2.18 billion. In the first seven months of 2016 South Africa recorded a trade surplus of R17.4 billion, compared with a deficit of –R24.7 billion during the same period in 2015. During 2015 as a whole, South Africa recorded a much improved trade deficit of –R48.63bn compared with a deficit of –R82.27bn during 2014. This improving trend is expected to continue in the second half of 2016 and South Africa is forecast to record a trade surplus for 2016 as a whole.

As mentioned above, the value of imports fell by -2.4%m/m (R2.18bn) in July 2016. This decline included a R1.4 billion (6%m/m) decrease in machinery imports, and a R0.87 billion (-10%m/m) drop in imports of vehicle parts. Over the past year, South Africa’s imports have declined by -3.9%y/y in Rands. This is an extremely weak level of import demand given the fact that the Rand has weakened by about 9% against the Dollar over the past twelve months. In other words, in volume terms the growth in imports into South Africa has declined sharply. This is closely linked to the country’s overall economic performance. Given that economic growth is expected to remain subdued over the coming months, import demand should remain relatively subdued in 2016/2017.

The value of exports fell by a surprise and fairly substantial -9.0%m/m (-R9.4bn) in July 2016. This decline included a massive R5.3 billion (-22%m/m) slump in precious metal exports as well as a –R1.26bn drop in base metal exports. Over the past year, South Africa’s exports have risen by 3.5%y/y in Rand; yet the Rand has declined by -9.0%y/y against the Dollar over the same period. In other words, although the weaker Rand might be slowly helping some of South Africa’s exports, the improvement is not broad-based and has not had a meaningful impact on South Africa’s trade account. Instead, South Africa’s trade balance has largely improved due to a systematic slowdown in import demand as a result of South Africa’s weaker economic performance. Unsurprisingly, South Africa’s tax collection of import duties is now well behind budget.

In conclusion, South Africa’s trade balance has generally improved over the past year, at least on a trend basis, helped largely by slowing import growth and some growth in selected export categories. Unfortunately, the slowdown in import growth largely reflects the weakness in the South African economy, rather than an improvement in import substitution. This overall trend is expected to continue during the remainder of 2016 and into early 2017, which should help to substantially narrow South Africa’s current account deficit, which was measured at just over 5% of GDP in the first quarter of 2016.

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