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Deficit shock: Rand needs to weaken

Oct 31 2012 21:00

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Johannesburg - South Africa's trade deficit widened sharply in September on a big fall of the export of metals and other mining products, the South African Revenue Service said.
 
Exports fell 7.7% amid rolling mine strikes.
 
Base metal exports slumped 9%, exports of precious and semi-precious stones and metals fell 4%, and mineral exports also fell by 4%.
 
The trade deficit increased to R13.8bn, up 13% from August.
 
"The September print follows the shock deficit seen in August," Razia Khan, the head of research for Africa at Standard Chartered, told Sapa.
 
"In cumulative terms, the year-to-date deficit in South Africa this year is more than seven times the deficit seen over the same period last year," she said.
 
According to Khan the figures show the need for the rand to weaken.
 
"South Africa needs the lift that a moderately weaker currency might provide to start seeing some narrowing of its external imbalances," she said.
 
"South Africa's vulnerability to a potential reversal of investor sentiment is also made clear by this data."
 
Earlier this month, ratings agency Standard and Poor's downgraded the country's benchmark credit rating from BBB+ to BBB, citing the unrest affecting the key mining sector.
 
Kevin Lings, chief economist at Stanlib, earlier told Reuters that the problem is "that our exports are under a lot of pressure".
 
“I think this pattern is going to continue because we’ve become, on the import side, more import intensive generally and on the export side we’re struggling, both in volume and in the actual prices we’re getting.
 
“It all means that the trade balance remains weaker which ultimately means the rand is at risk even from these levels.  We are funding it, but the amount we’ve got to fund is getting bigger and bigger. And clearly we’re not able to quite attract that level of foreign investment.”
 
Emerging market anlayst at 4Cast Anisha Arora said the figure compares much worse than what the market and 4Cast expected, and also fares worse in comparison to 2011’s surplus of R2.53bn.
 
“Both exports and imports dropped more than expected on a monthly basis, though exports posted a very sharp drop of -16.4 percent year-on-year. The export oriented nature of the South African economy combined with waning external demand has seen regular export growth diminish this year," she told Reuters.
 
“Add to this an increase in the value of merchandise imports, particularly oil and fuel prices in recent months, the pressures are building on external trade and we only expect this to widen further into the end of 2012.”
 
The rand initially fell to R8.69/$ on the data, but pulled back to R8.6732 at 15:55. It was bid at R11.2694/€ from its previous close of R11.1899 and at R13.9773/£ from R13.8739 before.
 
- Fin24
rand  |  mining unrest  |  exports  |  sa economy  |  trade deficit
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