Weak exports swung the South African trade account into a deficit in August while demand for credit was at its lowest rate since 1966, suggesting no swift spending recovery will lift the economy out of a slump. The South African Revenue Service on Wednesday said the trade account recorded a deficit of 1.98 billion rand ($266.5 million) in August after three months of surpluses including 447 million rand in July.
Sars said the deficit so far this year was 20.42 billion rand compared with 49.23 billion rand from January-August 2008. August's deficit came as exports fell 9.18 percent, the decline more pronounced than that of imports which declined by 3.76 percent month-on-month.
A strong rand currency could have accounted for the bigger fall in exports, analysts said. "A factor we can count on has been the stronger rand that may have reduced the value of exports and that could be the reason why the fall in exports is larger than that of imports," said Christie Viljoen, economist at NKC Independent Economists.
Viljoen added the lower imports highlighted weak consumer demand, a bad omen for an economy that is partly dependent on a spending recovery to come out of its first recession since 1992. The rand has gained more than 20 percent so far this year to the dollar. Central bank Governor Tito Mboweni has repeatedly said the rand's recent gains could lead to possible imbalances in the economy.
The manufacturing sector is the second biggest contributor to GDP growth and weak exports do not bode well for the economy. Jeffrey Schultz, macro strategist at Absa Capital, said the weak local economy will likely keep a lid on the deficit. In an effort to boost the economy, the central bank has cut the repo rate by 500 basis points to 7.0 percent since December.
Mboweni said last week while the local economy appeared to be on the mend, the recovery may be short-lived if consumer demand does not improve. Central bank data earlier showed consumer budgets remained tight, with demand for credit by the private sector slowing to 2.34 percent in the year to August, the lowest rate since 1966.
"Growth in credit is expected to weaken further during the remainder of the year, as households stay cautious when making purchases, particularly on credit, due to uncertain economic and employment prospects," said Nedbank in a note. Household spending lifted economic growth to an average 5 percent between 2003 and 2007.
But a survey by First National Bank and the Bureau for Economic Research on Wednesday showed most consumers are reluctant to spend due to high debt levels and job insecurity. Consumer confidence fell by 3 points to 1 in the third quarter. "Even if household income starts to improve, the recovery in consumer spending is likely to be slow, as some consumers are likely to favour saving rather than spending," FNB/BER said.
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