South Africa’s terms of trade deteriorated materially in the first half of 2023 compared to the same period last year due to the declining volume of exports and weakening rand exchange rate during the period.
In July, South Africa recorded its most significant trade surplus of the year of R16 billion following a deficit of R3.5bn in June, but exports lifted by only R7.7bn as June was a low base, and there is typically high volatility in the trade data, while imports fell by -R9bn, a not unusual amount
Investec chief economist Annabel Bishop on Friday said the trade balance averaged a miniscule surplus of R500 million in the first half of 2023, versus the surplus of R22.3bn for the same period last year, due to lower exports compared to last year.
Bishop said there continues to be a broad-based increase in the cost of imports overall for South Africa in 2023 to date of 9.1% and 8.8% year-on-year for the first half of 2023, with the rand experiencing very marked weakness compared to the same period in 2022, adding to import costs.
“That is, the trade balance heavily affects South Africa’s exports, and the domestic currency saw some rand strength in July on the trade surplus, averaging R18.17/$1 compared to R18.72/$1 over June, but then weakness of R18.79/$1 over August,” Bishop said.
“South Africa has structural deficiencies to its economic growth as a result of Transnet’s poor performance, which is limiting the capacity for exports, and so the terms of trade, weakening actual and potential economic growth, and so damaging sentiment
“South Africa needs to urgently put all factors in place to drastically improve Transnet’s performance, and particularly the improvement of the running of Transnet, which is hamstringing exports and the rand, and so economic growth and employment.”
The country’s structural deficiencies such as rotational power cuts, logistical challenges, and the continued pressure on consumer inflation, are expected to see the economy grow by a subdued 0.7% in 2023.
According to the SA Reserve Bank (SARB), the economic growth forecast for 2024 and 2025 remains unchanged at 1.0% and 1.1%, respectively.
SARB Governor Lesetja Kganyago on Thursday said while households and firms exhibited some resilience, economic growth has been volatile and highly sensitive to new shocks.
“An improvement in logistics and a sustained reduction in load shedding, or greater energy supply from alternative sources, would significantly increase growth,” Kganyago said.
“At present, we assess the risks to the medium-term domestic growth outlook to be balanced.”
Bishop concurred that South Africa’s overall poor trade performance, and domestic structural constraints remained key to suppressing South Africa’s export potential, and so its gross domestic product (GDP) growth and employment potential.
Eskom reduced sharply implementing load shedding in the second quarter of 2023 by the failure to carry out routine maintenance and repairs, which has now necessitated higher stages of load shedding in order to effect the now urgent nature of the maintenance and repairs.
“The high stages of both load shedding and load curtailment will weaken the third quarter GDP economic outcome instead of the initially feared effect on the second quarter of 2023,” Bishop said.
“Up until August the consensus was still for a 0.2% GDP growth rate for SA this year, but September has seen consensus lift to 0.6%. However, just as the second quarter GDP activity surprised on the upside, the third quarter could well surprise on the downside.”