[DEBATE] : (Fwd) Trade deficit explodes

[Patrick Bond]

www.bday.co.za
30 November 2007
Trade gap jumps to record on oil imports
Reuters

SA’s trade deficit soared to a record R14,73bn last month, largely due 
to a sharp rise in oil imports, official data showed on Friday. The 
shortfall widened from R4,3bn in September and the previous record of 
R12,9bn in October last year.

The deficit will pile pressure on the current account, which narrowed to 
6,5% of gross domestic product in second quarter.

Imports traditionally rise during the final few months of the year ahead 
of a decline in December.

“It’s definitely shocking but obviously the October number is bigger 
because of imports ahead of the festive season,” Citadel economist Dave 
Mohr said.

“If we look at it comparative to last year the cumulative growth for the 
first ten months of the year is substantially higher.”

The South African Revenue Service said the cumulative deficit for the 
first 10 months of the year stood at R70,1bn, against R55,3bn last year.

October exports rose by 4,3% compared to the previous month to R41,53bn, 
while imports leapt 27,42% to a record R56,26bn.

Oil imports doubled during the month on higher shipments and prices, 
countering a 34% drop during September, while vehicle and heavy 
machinery imports also rose sharply.

The rand initially weakened on the data, slipping to R6,77 to the dollar 
from R6,75 before the numbers were released, before resuming its session 
rally.

The Treasury has forecast the deficit on the current account to remain 
wide for the next few years, topping 7,8% of GDP in 2010, as imports 
rise to feed a massive government infrastructure spending programme.

Government and its state-owned entities plan to spend at least R400bn to 
upgrade its power grid, and transport infrastructure over the next five 
years.

Analysts said the data was just another reason for the central bank to 
raise interest rates next week to try curb spending, even though much of 
the imports were investment-related.

“It’s going to add onto the current account deficit and consequentially 
add to the depreciation of the rand and that can come back to feed 
inflation, and then a rise in interest rates,” Mandla Maleka, economist 
at electricity utility Eskom, said.

“The number is very negative for the interest rate environment.”

The Rserve Bank is widely expected to raise interest rates again on 
December 6 following shocking inflation numbers released earlier this week.

It has already raised its repo rate by 350 basis points to 10,5% since 
June last year to try tame inflation and robust consumer spending.