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Current Accounts Post Record Surplus As Manufacturing Takes A Hit From Lockdown, Looting

10 September 2021 – Subdued sentiment on global markets kept the rand in the red yesterday, putting a slight dampener on the substantial widening in the current account balance of payments, which came in at the largest surplus ever of R343 billion in the second quarter of 2021, advancing from R261bn in the first quarter.

The figure was R10bn higher than analysts’ expectations for the quarter, signifying the height in the softening of commodity prices, particularly platinum group of metals.

As a ratio of gross domestic product (GDP), the current account surplus widened to 5.6 percent in the second quarter of 2021 from 4.3 percent in the preceding quarter.

Investec economist Kamilla Kaplan in a note said export demand for non-commodity goods had also been supported by the global economic recovery aided by the deployment of vaccines, significant fiscal support in some countries and accommodative monetary policy stances in the major economies.

According to figures released by the SA Reserve Bank yesterday, merchandise exports increased to a new all-time high in the second quarter of 2021, with imports increasing by 3.4 percent to its second highest level since the second quarter of 2019.

The trade surplus widened to a record high of R614bn in the second quarter of 2021 from R451bn in the first quarter. The higher value of exports of goods and services reflected a larger increase in prices than volumes while imports mostly reflected an increase in prices.

The shortfall on the services, income and current transfer account widened noticeably to R271bn in the second quarter of 2021 from a relatively small deficit of R190bn in the first quarter. Relative to GDP, the deficit increased to 4.4 percent from 3.2 percent over the same period. Kaplan said export demand for non-commodity goods gained from global economic recovery that had been aided by the deployment of vaccines, significant fiscal support in some countries and accommodative monetary policy stances in the major economies.

“In contrast, the comparatively softer import momentum reflects the effects of financial pressure on households and relatively weak rates of capital outlays by both the private and public sector,” Kaplan said.

Meanwhile, in data released by Statistics South Africa, manufacturing production decreased by 4.1 percent in July compared with the previous year, which analysts attributed to tighter lockdown restrictions and the looting mayhem. The impact had a telling effect on petroleum, chemical products, rubber and plastic products which recorded a negative 23.2 percent, contributing a negative 5.4 percentage points decline while food and beverages suffered a negative 2 percent decline.

Investec economist Lara Hodes said the destruction cost billions of rand in damage, disrupting economic activity, forcing many manufacturing plants to close, while interruptions to transport, resulted in supply disruptions, affecting production at a range of other manufacturers.

“This at a time when conditions are already fragile with many businesses struggling to stay afloat, following the effects of the pandemic. Additionally, unreliable electricity supply continues to remain a downside risk for manufacturers and the economy, with Eskom’s energy availability factor averaging just 62.8 percent year-to-date,” Hodes said. The positive contributions were made by furniture and “other” manufacturing, basic iron and steel, non-ferrous metal products, metal products and machinery as well as motor vehicles, parts and accessories and other transport equipment.

Hodes said advance indications provided by August’s manufacturing PMI survey, however, suggest that manufacturing activity rebounded in August, with the index climbing back into expansionary territory with a reading of 57.9 points. Source (Business Report)