Which way is the South African economy going? The two latest sets of economic data point in dramatically different directions.
On Wednesday, the South African Revenue Service (SARS) reported that SA’s trade balance for January was completely blown out. SA recorded the highest monthly trade account deficit in its history. To make it worse, the trade deficit was two and a half times higher than the comparable deficit in 2017.
Worse, there was not only a spike in imports but also a thumping simultaneous drop in exports. And still worse, every major subcategory of exports showed a decline. Motor vehicles, precious metals, processed metals and machinery exports declined more than 20%. And if that were not enough, the decline happened against the backdrop of a stronger rand, which would normally have helped imports at least.
Still, a record deficit is not something to celebrate, and it’s worth noting that over the longer term, SA’s balance of trade has been trending worse
Of course, January is an odd month, with manufacturers still limbering up after the Christmas break. And traditionally, the trade account is a volatile number, unduly affected by big-ticket items that float into and out of the measure at odd times.
Economists are pretty certain it will bounce back in February. Certainly, the surprise strength of the local currency must have hurt importers, many of whom would have placed orders a few months back before they knew the ANC’s elective conference would end successfully.
Still, a record deficit is not something to celebrate, and it’s worth noting that over the longer term, SA’s balance of trade has been trending worse. The decline of the mining industry over the medium term in SA has particularly hurt SA’s trade balance.
The declining trade balance has been one of SA’s strangely under-recognised problems. The January disaster could easily be written off, and usually would be. But should it persist at these levels, it could easily become a major issue.
But on the other side of the coin, the Absa purchasing managers index (PMI) has finally peeked its nose over the 50-point mark, which normally suggests the sector is in growth mode. The index was last in the green more than a year ago, but it has been in and out of the red since the financial crisis. Over this period it has been on a gentle downward trajectory, so it becomes a real pleasure for it to move into positive territory.
The index moved to 50.8 from 49.9 in February, which is an impressive improvement from the gloom of July 2017, when it was sitting at around 45, which at that time was the lowest it had been since the financial crisis in 2009. Notably, almost all the key sub-indices were stronger in February, with the biggest jump coming in something called the "future conditions" measure, which is a measure of longer-term optimism. This index rose to 79.1, which is the highest recording since 2001 and almost certainly a result of the election of Cyril Ramaphosa as president and his promises to crack down on corruption and boost growth.
There’s also other good news. The increase in the headline index was driven by impressive improvements in the business activity and new sales orders indices, which together account for more than half of the PMI’s weight. These vectors point not only to generally higher business confidence but that the confidence is being put into practice.
So what exactly is happening here? Generally, the trajectory remains upward but fragile. Output data last week showed manufacturing was stronger compared to the last quarter of 2017, so presumably the trade data is a consequence of the strength of the rand, which took exporters and importers by surprise.
Economists are still pencilling in about 2% growth in the fourth quarter of 2017 when the announcement is made next week. Ramaphosa is benefiting from a wash of good news that is being supported by unusually synchronised global growth. But it’s a touch on the fragile side and requires further confirmation before a turnaround can be definitively announced.