In June 2015, South Africa’s trade balance recorded another surplus of R5.80bn. This compares with a surplus R4.94bn in May 2015 and a monthly average trade deficit of –R6.08bn over the past year. The market was expecting a trade surplus of around R4.0bn. In the first six months of 2015, South Africa recorded a much improved trade deficit of –R24.65bn compared with a deficit of –R46.77bn during the corresponding period in 2014. Furthermore, in Q2 2015 the trade balance achieved a surplus of R8.66bn, which is the first quarterly trade surplus since Q4 2011.
The value of exports increased by 1.6%m/m (R1.45bn) in June 2015. This improvement included R1.1 billion (25%m/m) rise in vegetable exports, a R0.96bn (9%) jump in vehicle exports, and a R0.56bn (7%) improvement in machinery exports. These were partly offset by a R1.0bn (5%m/m) decline in coal exports Over the past year, South Africa’s exports have risen by a welcome 12.1%y/y in Rands, but have declined by 1.8%y/y in Dollars.
The value of imports also increased in May 2015, but by only by 0.7%m/m (R0.59bn). This increase in imports included a R1.29bn jump in imports of machinery and equipment. In contrast, imports of oil declined by a substantial R2.0bn, while vehicle imports fell by R0.57bn (7%m/m). Over the past year, South Africa’s imports have increased by 5.0%y/y in Rands. The growth in imports into South Africa is closely linked to the country’s overall economic performance. In other worlds, import growth tends to slump when the South African economy stagnates; which appears to be the situation at present (see chart attached).
The last two months trade data is a encouraging from the perspective of helping to meaningfully reduce South Africa’s deficit on the current account. This should help to ease some of the pressure on the Rand. It will also make the Reserve Bank less anxious about South Africa’s vulnerability to a hike in US interest rates. However, the fall-off in imports signals sluggish domestic economic activity and a lack of fixed investment spending.
Hopefully, systematically higher world growth, coupled with some stability in SA’s labour market (especially in the mining and motor industries), and more certain electricity supply will help lift SA’s export performance over the coming 12 to 24 months. Unfortunately, as we mentioned in recent months, this progress is likely to be slow and relatively moderate, especially given the recent decline in commodity prices, as well as the economic slowdown in China. Equally, given the general weakness in the domestic economy (especially the lack of fixed investment activity), it is logical to expect import demand to ease further over the coming months; or at least stagnate relatively to the level of imports a year-ago. This slowdown in imports will depend heavily on the oil price. All of this implies that South Africa’s current account deficit should improve further in 2015 relatively to 2014 and help to ease the pressure on the Rand. The country still remains highly dependent on foreign capital inflows to keep the Rand from weakening further.
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