Slump in exports lifts trade deficit to R16.3bn

File picture: Denis Farrell

File picture: Denis Farrell

Published Oct 1, 2014

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The trade deficit worsened significantly to R16.3 billion in August from a revised R6.8bn in July as exports fell sharply, figures from the SA Revenue Service showed yesterday.

The news pushed the rand to R11.349 against the dollar, its weakest level since late January.

The National Treasury also revealed the budget deficit in the first five months of the 2014/15 financial year was R111.847bn compared with a R93.297bn shortfall over the same period last year.

The trade deficit was twice as big as the market consensus of R8bn. The R9.5bn increase was the biggest since January as exports fell sharply after some improvement in July.

Christie Viljoen, a senior economist at NKC Economist, said of the trade deficit: “There is no good news in this report.”

The cumulative trade deficit for the first eight months of this year was now R70.7bn, 36 percent higher than at the same time last year. “This feeds into the current account deficit. This explains why the rand is so weak,” Viljoen said.

Imports rose marginally by R1.3bn (1.4 percent month on month) to R93.5bn, reflecting higher imports of mineral products, mainly oil.

Exports decreased significantly by R8.2bn (9.6 percent month on month) to R77.2bn, weighed down by lower exports of mineral products, vegetable products and precious metals.

Viljoen said one contributor to the decrease in mineral products exports was the 10-day annual shutdown for essential maintenance of the 861km Transnet railway line between Sishen in the Northern Cape and Saldanha in the Western Cape for iron ore exports.

Nedbank economists Dennis Dykes and Isaac Matshego said a gradual improvement in exports was expected as the effects of the mining and manufacturing strikes dissipated, while largely favourable global conditions and rand weakness would add further support.

Raymond Parsons, a professor at the North West University Business School and a former executive at Business Unity SA, said the larger-than-expected trade deficit meant Finance Minister Nhlanhla Nene had to manage large twin deficits in his medium-term budget policy statement this month at a time when the economy as a whole was not in a good space.

He said: “The latest trade deficit figure merely confirms that South Africa is facing a structural problem of weakening global competitiveness, rather than a cyclical phenomena, because economic growth is low and export performance is not good.”

While the flexible exchange rate would take most of the strain, there were other negative consequences flowing from a weak currency, especially with inflation still at the upper end of the target range.

The Reserve Bank would no doubt be monitoring these developments carefully before the next meeting of its monetary policy committee, he said.

“There is no ‘quick fix’ for either the trade deficit or the fiscal deficit. The message that has to come through in the medium-term budget policy statement is that the government will stick to implementation of the National Development Plan, will demonstrate that it has public finances under control, including how Eskom and the nuclear programme are to be funded, and will emphasise investment rather than consumption in the state spending mix.

“Business, the financial markets and credit rating agencies, in particular, will be looking for policy reassurance… in dealing with these twin deficits,” Parsons said.

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