FxWirePro: ZAR to resume losses against dollar as South Africa’s external vulnerabilities linger

After the central banks of South Africa, Nigeria and Kenya decided to keep rates on hold last week, attention shifted to a glut of macro data.

South Africa reported a trade deficit of -ZAR9.9bn in August, the largest since the start of the year, with the July deficit also revised, to -ZAR1.1bn from -ZAR0.4bn.

The latest trade data are consistent with our view that the current account deficit is likely to widen to about -4.2% of GDP in Q3 15 from the -3.1% recorded in Q2 15.

Though economic growth weakened in Q2 in Namibia, Mauritius and Seychelles, Kenya recorded a stronger expansion compared with the previous quarter.

In South Africa specifically, a number of releases published this week, including the credit, jobs and consumer confidence, all showed that the consumer remains under a lot of pressure and are unlikely to offer much support to growth in the near term.

But most notable was the South Africa August trade data report, which brought South Africa's external vulnerabilities to the fore. The data showed the widest deficit since the start of the year of -ZAR9.9bn, significantly larger than consensus (-ZAR3.4bn) and our slightly more pessimistic forecast (-ZAR4.8bn).

The deficit came as a result of a 7.1 m/m contraction in exports and a 3.6% increase in imports. The August data come against a backdrop of sustained adjustment in the trade accounts through H1, which resulted in Q2 seeing the first trade surplus since Q4 11.

The export contraction was driven primarily by mineral products and base metals, which were down 20.1% m/m (or ZAR4.2bn) and 20.0% m/m (or ZAR2.5bn), respectively. These are likely to be in part reflective of softer commodity prices and weakening demand from China.

Meanwhile, the import growth mainly took direction from vehicles (up 22.1%, or ZAR2.0bn) and mineral products (up 12.1% m/m, or ZAR1.8bn). The rise in mineral product imports in particular could partly reflect some normalization of crude oil imports after a sharp fall in Q2 due to maintenance at some refineries.