The South African trade index has been on an upward trajectory since April this year; June ended with a trade surplus of R10.7 billion, an increase from the previous month’s surplus of R9.5 billion.
What this means is, import prices are falling relative to the country’s exports, and this is probably a contributing factor to the stabilising rate of inflation, which has maintained at 5.1% for June. With the current political stance and issues with SOEs, caution should be placed on the impact of export volumes declining, which could hinder this promising trade account trajectory.
Moreover, stable commodity prices and global conditions bolstered mining and agricultural output in the previous months, thus these sectors are likely to contribute favourably to the GDP this year. However, this growth is out of sync with global growth trends and too low to make a significant impact to South Africa’s current economic challenges, such as the uncertainty around domestic policy, as seen with the proposed Mining Charter, for example.
Producer price inflation slowed to levels below market expectations at 4% in light of June’s lower fuel and food prices, with BER (Bureau of Economic Research) consumer confidence remaining adverse, the disinflationary pressure is reflecting positively on consumers’ purchasing power and some relief may be seen on sales.
Furthermore, some expected short-term foreign inflows and the relatively low cost of capital (as a result of June’s rate cut) may bolster activity in the business front, as both business and consumer confidence could recover somewhat in the near term.