Trade update: January 2018 trade deficit widens to R27.7bn from R11.3bn in January 2017 on stronger import growth

27 Feb 2018

Annabel Bishop

Chief Economist

Figure 1: Trade balance and rolling average
  • Following a R15.3bn surplus in December 2017, the trade account registered a deficit of R27.7bn in January, far exceeding market expectations of a R1.7bn shortfall.
  • A deficit is typically incurred in the month of January as imports increase from the seasonal decline in the month of December. Exports traditionally decline in the month of January.
  • The magnitude of the deficit was substantially larger than in the last few years (R11.3bn in January 2017; R18.2bn in January 2016 and R23.5bn in January 2015) when decelerating economic activity restricted the growth in imports of consumption and capital goods.
  • In month to month terms, imports increased by 21.9% m/m in January 2018 to R108.2bn with the main driver being the 139% m/m increase in original equipment component imports. There is a possibility that this could be linked to the resumption of production of the Polo model by Volkswagen (VW). Toward the end of 2017, VW had halted production of the Polo to upgrading production facilities, tooling and manufacturing equipment in preparation for the launch of the new Polo model in 2018.
  • The other key imports in January were base metals and mineral products which rose 56% m/m and 21% m/m respectively.
  • Exports contracted by 22.6% m/m to R80.5bn, with vehicle and transport equipment exports falling by 47% m/m. Exports of precious metals and mineral products decreased by 34% m/m and by 21% m/m.
  • Export growth should recover in the months ahead, broadly in line with foreign demand amid an increasingly broad-based and synchronised lift in global economic growth. Leading indicators such as the manufacturing PMI survey showed a sustained rise in new export orders (see figure 2).
  • With domestic economic growth expected to pick up at only a modest rate this year, imports of consumption and capital goods should remain relatively contained. Moreover, sustained rand resilience would dampen the value of higher commodity price imports.
Figure 2: Global manufacturing PMI: new export orders