Falling auto exports, strikes in mines blamed even as survey report says business conditions are deteriorating, reports Team IFM
Pretoria,June 5: A marked slowdown in vehicle exports unexpectedly widened South Africa’s trade deficit to 13.026 billion rand ($1.3 billion) in April, official data released last week showed, while an independent survey report said business conditions deteriorated in the country for the first time in three years amid reports of strikes in its platinum sector.
According to customs and excise data released by the South African Revenue Service (SARS) on Friday, the country recorded a deficit of R13.026-billion in April, up from a revised estimate of R11.88 billion in March. Month-on-month exports decreased 2.6 percent.
The latest data brings the cumulative deficit for 2014 to R40.96 billion compared to R30.66 billion over the same period in 2013. A major reason behind it was the 36.2 percent drop in auto exports in April, compared to the year-ago period.
A poll of economists by the Johannesburg-based Business Day newspaper had forecast a deficit of R11 billion, with predictions ranging from trade gaps of R4.9 billion to R15.53 billion. A Reuters economists’ poll had forecast a trade shortfall of 12 billion rand for April.
The sharp drop in the April PMI is on account of factors beyond just “the configuration of public holidays”, says Investec chief economist Annabel Bishop in her analysis of the SARS data in her company’s website.
“Part of the decrease in activity can be ascribed to calendar effects, relating to the combination of Easter and public holidays in April 2014 that resulted in likely additional leave days taken, relative to prior years,” Bishop said.
“Notwithstanding this effect, weakening domestic demand, and labour strife in the allied mining sector have weighed on the performance of the manufacturing sector,” she said.
An independent survey conducted by Markit on behalf of HSBC found factory output contracting after mining strikes caused disruptions in operations.
New orders fell at the quickest pace since it began surveying South African companies in July 2011, Markit said, with rate of cost inflation being weakest since last December.
Moreover, April data signalled the “first deterioration in operating conditions” at South African private sector companies for seven months, it said. The headline PMI dropped from 50.2 in March to 49.4, its lowest level since June last year.
The latest reading was, however, indicative of only marginal contraction in the sector, but HSBC economist David Faulkner saw inherent weakness in business operations.
“The protracted strike in the platinum sector remains a key factor behind weak activity levels,” Faulkner said. “Yet the PMI data indicate a broader and underlying fragility to South Africa’s private sector.”
WORRYING DATA
Of some concern, Investec’s Bishop said in her analysis, is that the business activity sub-index signalling a contraction in production.
Aside from March 2014 when the index lifted above the 50-mark, it has been in “contractionary territory” since December 2013, she said, noting, “Lower production reflects the decrease in new sales orders.”
The R11.389 billion deficit in March was accounted for by exports of R77.422 billion and imports of R90.448 billion.
From March to April, exports decreased by R2.06 billion, or 2.6 percent, and imports decreased by R0.91 billion, or 1 percent, the SARS data showed.
According to sales data with the National Association of Automobile Manufacturers, automakers exported 16,801 units in April, reflecting a pronounced decline of 8,142 vehicles or a fall of 32.6 percent compared to the year-ago period. South Africa exported 24,943 vehicles in April last year.
Incidentally, the trade balance would have recorded a shortfall of R20.053 billion if trade with Botswana‚ Lesotho‚ Namibia and Swaziland was excluded.
“The rand’s weakness has not assisted in boosting export demand overall as it has been overshadowed by the impact of work stoppages due to incidences of inconsistent electricity supply and labour strikes, and weakening demand from China,” Bishop said.
“The euro zone is still exhibiting anaemic growth, resulting in weak demand for manufactured goods.”
She said although the economies at South Africa’s major export destinations are strengthening, the pace is gradual. “For instance, the euro zone is only expected to produce growth of 1.2 percent this year, which indicates a very modest expansion,” Bishop noted.
WORSENING CONDITIONS
Meanwhile, Markit said its own data signalled the first deterioration in operating conditions at South African private sector companies in seven months. At the same time, it said, suppliers’ delivery times deteriorated further amid reports of mining strikes and a lack of some raw materials
The headline PMI dropped from March’s 50.2 to 49.4, its lowest level since June last year. The latest reading was, however, indicative of only marginal contraction in the sector.
South African private sector companies reported a second successive monthly fall in activity during April, and the sharpest since last September.
Markit said survey participants largely attributed the decline to lower new business and disruptions caused by ongoing mining strikes.
New order intakes also decreased again in April, with the pace of contraction the quickest in the 34-month series history. “In addition to the mining strikes, the upcoming elections were mentioned by panellists to have weighed on demand,” Markit said.
Alongside, new export orders also fell, having risen in the previous two months.
Despite falling output and new orders, companies continued to take on additional workers in April, stretching the current sequence of employment growth to three months. However, the rise in staffing levels was marginal overall.
Concurrently, backlogs of work fell at the second-steepest rate on record, largely attributed by panellists to lower new business.
On the price front, input costs increased to the weakest extent in four months.
“While the rate of purchase price inflation eased substantially since March, average staff costs rose at an accelerated pace,” Markit said. “In response to higher input costs, South African private sector companies raised their output charges.”
In line with weaker demand, companies lowered their purchasing activity during April. The fall in buying followed an eight-month period of growth. Stocks of purchases also fell, as companies were cautious about their stock policy, Markit said.
“The rate of contraction in new orders accelerated in April to its quickest pace on record,” said HSBC economist Faulkner. “In part this will reflect the decline in new export orders, but also suggests further weakening in domestic demand.”