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Cape Town - Should the trade linkages with the UK react negatively on the back of the Brexit decision, it could have a negative impact on South Africa's overall current account balance, Karl Götte, head of Standard Bank Commercial Banking, said on Thursday.
The Brexit decision sent shockwaves through international markets as previous consensus indicated that the UK would decide to remain within the EU. The decision to leave after 43 years of membership resulted in volatility in global financial markets with the pound sterling plummeting to a 31-year low against the dollar.
The decision is expected to have an adverse impact on South African exports to the UK – particularly within the agricultural sector, in his view.
In his comments on the latest trade data by the SA Revenue Service (Sars), Götte said that while SA Reserve Bank governor Lesetja Kganyago pointed out this decision is unlikely to result in a recession, it is expected to add further pressure on SA’s already slowing economic growth.
Götte said SA imports 3.3% of total merchandise from the UK and exports around 3.8% of total merchandise to the UK. He expects SA would have to re-negotiate trade agreements with the UK. He foresees, however that this would not be an immediate decision.
“SA’s trade balance for May 2016 came in at a surplus of R18.7bn. The trade account’s year to date position has improved to -R27.5bn when comparing it to May 2015 (-R29.8bn) due to exports growing faster than imports. Exports grew year on year by 10.2%, while imports grew by 3.4%. A trade surplus was expected by the market,” said Götte.
“The latest drop in business confidence, coupled with the Brexit decision, has highlighted the importance of having a diversified business model. Turbulent market conditions, however, do give rise to opportunities.”
Götte also pointed out that the RMB/BER Business Confidence Index fell to 32 in the second quarter, the lowest level since the fourth quarter of 2009, when the index was 28.
"The latest retail survey results revealed that business challenges have waned on business confidence. Rising input costs and lower pricing power have weighed on overall profitability of businesses – mainly retailers," he said.
"Growth in retail sales volumes slowed during the second quarter with the pressure felt in durable goods. Despite the 1.2% contraction in gross domestic product (GDP) in the first quarter of 2016, the trade sector grew by 1.3%.”
