Weaker currency inflicts trade pain

Price pressure caused by a weaker rand reared its head in July to push SA's trade deficit to a worse than expected R14.2-billion, marking the 19th consecutive monthly deficit.

The deficit in June was R7.7-billion and, while economists had expected a worse outcome then, their projections this time proved to be too conservative.

High import prices, driven by consumer activity - especially the purchase of cars - have been pushing imports higher than exports, but analysts expect the weak rand to benefit exports even more, while it will have an opposite effect on consumer buying activity.

But strike-related disruptions in the manufacturing and mining sectors in coming weeks will hold back the export recovery.

A poll of economists had forecast an R8.9-billion deficit.

The R14.2-billion deficit for July was the result of exports of R75.69-billon and imports of R89.89-billion.

SA Revenue Service customs and excise data released showed that exports increased from June to July by R7.45-billion (10.9%), with sales into Africa driving the growth. Imports rose by R13.97-billion (18.4%).

"The increase in imports was extremely broad-based and included a large rise in imports of machinery and equipment as well as vehicles. Exports were helped by a solid rise in precious metal sales, but this was not sufficient to offset the increase in imports," said Stanlib's chief economist Kevin Lings.

The cumulative deficit for 2013 is R89.37-billion, compared to R59-billion during the same period in 2012.

"Given the further depreciation of the rand, coupled with a meaningful slowdown in the domestic economy, we still expect import demand to ease somewhat over the coming months," said Lings.

Nedbank economists Isaac Matshego and Dennis Dykes said the weaker rand was likely to moderate demand for some goods, particularly consumer goods.

"These trade numbers do not change our view that the Reserve Bank is likely to keep interest rates unchanged well into 2014," they said.