HIGHER OIL IMPORTS ACCOUNT FOR MUCH OF THE DETERIORATION IN THE TRADE ACCOUNT
The
September/October period is often characterised by an increase in the importation of goods
and services as businesses build up inventory ahead of the Christmas buying spree.
Accordingly, there tends to be a deterioration in the terms of trade around this period.
Even so, one did not anticipate that a deterioration of the magnitude which took place in
September, would occur. August had seen a deterioration in the trade account already to
its biggest monthly deficit this year, of -R3.24bn. September now sees a further
deterioration to a new year-long high, of -R3.69bn. This is in fact the third highest
monthly trade deficit on record. The magnitude of the deficit has been exaggerated by a
substantial R2.26bn increase in imports of "mineral products", mainly crude oil.
In the absence of this increase, the deficit would have been more in line with
expectations, at between R1.5bn and R2.0bn. However, for some time now we have been
suggesting that the full extent of the increase in oil prices has not yet filtered through
into the trade account. In the past two months this appears to have come to pass. Even
now, however, one is still not certain whether the full extent of the higher cost of oil
imports has manifested itself. Adjusting for this factor, there still appears to have been
an underlying marked deterioration in the terms of trade in recent months. CUMULATIVE TRADE DEFICIT MORE THAN DOUBLES OVER FIRST NINE MONTHS
OF '05
The
jump in the cost of oil imports has taken the monthly value of imports up to a new
all-time high of R33.0bn, which represents a y-o-y growth rate of 17.2%. This is almost
dead in line with the average growth in imports in the first nine months of the year, of
17.0%. Ominously, given the rise in commodity prices of minerals to new highs during
September, growth in exports fell sharply, from 34.4% in August, to 7.5% in September.
This is well below the year-to-date growth in exports, of 12.1%. One suspects that there
have been some distortions created by accounting methods which may have transferred some
of September's exports into August and helped to limit the deterioration in the August
trade data. Bottlenecks at South African ports also contribute towards distorting the
data. We may only find out more about this in months to come. However, one is concerned at
the fact that the cumulative trade deficit over the past three months alone, has reached
almost R8bn. On an annualised basis, this equates to a merchandise trade deficit of over
R30bn. |
When
combined with an underlying deficit on the services account of between R35bn and R40bn,
this equates to a current-account deficit of between R65bn and R70bn, or more than 4% of
GDP. As it is, cumulatively for the first nine months of the current year, the trade
deficit, of -R15.88bn, has more than doubled over the corresponding cumulative deficit
last year, of -R7.82bn. DOWNWARD ADJUSTMENT IN RAND EXCHANGE RATE CALLED FOR
One suspects that it is only a matter of time before this deterioration in the terms of
trade translates into a further downward adjustment by the market in the exchange rate of
the Rand, in the manner which occurred in May. Indeed, some might argue that this downward
adjustment might already have begun in recent weeks. In this regard, one can only reflect
on the fact that the Rand has been one of the weakest of all currencies this year,
notwithstanding the massive capital inflows into the country, high commodity prices and
relatively high interest rates which ought to encourage the carry trade. In addition, one
must bear in mind that this deterioration in the currency has taken place at a time when
risk aversion towards emerging markets generally has been at an all-time low. The only
conclusion one can draw therefore is that the magnitude of the current-account deficit,
which is one of the largest amongst developing countries, has been calling forth a
downward adjustment in the exchange rate.
ENCOURAGING IMPROVEMENT IN NON-MINERAL EXPORTS
At the same time it is a source of encouragement that the performance of non-mineral
exports was good in September. In particular, one notices significant growth in exports of
vehicles and aircraft and chemicals. This suggests that some of the downstream production
processes dependent on crude oil, might be benefiting the overall terms of trade in terms
of a more encouraging growth. In September specifically, growth in non-mineral exports
reached 27.4% in contrast with exports of minerals, which fell in absolute terms by -4.3%
y-o-y. Furthermore, for the year-to-date, non-mineral export growth, of 15.1%, has also
exceeded that of mineral exports, at 12.6%. |
