The trade surplus for May came in at R54.6 billion, wider than the R51.2 billion surplus recorded in April. This was the widest monthly trade surplus since January 2010. Year-to-date (January to May), the cumulative trade surplus measured R202.6 billion compared to just R10.6 billion in the corresponding period last year. The sustained trade balance reflects elevated terms of trade, rising global demand and weaker (but recovering) domestic demand.
Outlook
The sustained trade surplus is positive and poses upside risk to the current account outlook. At this stage we pencil in a current account surplus of around 1.9% of GDP for 2021. In 2020 the current account surplus averaged 2.0% of GDP and printed at 5.0% of GDP in 1Q21, with the trade surplus measuring 8.1% of GDP. While economic disruptions related to Covid-19 restrictions and load-shedding could limit export volumes, we expect this to be counteracted by subdued domestic demand – particularly private sector fixed investment and imports. Positively, the sustained trade surplus and the generally positive outlook on the current account fundamentally provide support to the rand through external funding relief.
As a result, we are constructive on the rand; we expect it to be strong this year relative to last year when it was negatively influenced by global financial turmoil at the height of the pandemic. Sustained higher commodity prices and emerging market inflows should also remain positive for the rand, limiting the inflationary impact of higher oil prices on domestic inflation.
Export and import performance
The expansion in the trade surplus was influenced by nominal exports, which grew strongly by 54.8% y/y (and by 1.5% m/m; R2.4 billion m/m). The 54.8% y/y growth in nominal exports reflects a moderation from growth of 210.3% y/y recorded in April, as the pandemic-induced low base of 2Q20 begins to fade. As a result, YTD nominal exports are up by 51% compared to the corresponding period last year and up by 44.6% compared to the corresponding period in 2019. Besides last year’s base effects, this reflects elevated terms of trade and rising external demand.
Detailed export data shows that some of the major export categories, such as vehicles, aircraft, vessels and associated transport equipment, are up by 68.4% YTD (at R77.8 billion compared to R44.2 billion in 2020); machinery and mechanical appliances[1] are up by 55.1% YTD (at R48.7 billion compared to R31.4 billion in 2020); base metals and articles of base metals are up by 34.1% YTD (R62.7 billion compared to R44.8 billion in 2020); natural or cultured pearls[2] are up by 100.4% YTD (at R202.3 billion compared to R100.9 billion in 2020); mineral products are up by 41.8% YTD (at R180.9 billion compared to R127.6 billion in 2020); and vegetable products are up by 10.3% YTD.
Nominal imports grew by 26.7% y/y in May, slightly stronger than the 25.0% y/y growth for April. However, nominal imports contracted by 0.9% m/m after contracting by 4.9% m/m in April. Excluding mineral products, nominal imports contracted by 2.8% m/m after contracting by 8.1% m/m in April. Mineral products grew 88.9% y/y (9.2% m/m) and were up by 9.3% YTD compared to the same period in 2020 but down by 7.0% compared to the same period in 2019. This reflects recovering but still subdued domestic economic activity.
INFO SUPPLIED BY FNB.
