SA current account, rallying rand, manufacturing data are rare gems of (relatively) good economic news
South Africa’s rand rallied to – wait for it – below 19/$ on Thursday after the central bank said the current account deficit surprisingly narrowed in the first quarter of this year. This was followed by data showing that manufacturing output rose on an annual basis in April by 3.4% after declining 1.8% in March.
Good news on the South African economic front these days is rarer than a functioning Eskom power station.
Small wonder, then, that markets welcomed two gems of relatively good economic news that fell from the sky on Thursday. While not quite manna from heaven, the data at least contains the seeds of some hope for a change.
First was data released by the South African Reserve Bank (Sarb) showing that the deficit on the current account – the broadest trade in goods and services with the rest of the world – unexpectedly narrowed to 1% of gross domestic product (GDP) from a revised 2.3% of GDP in the previous quarter.
The median of a Bloomberg poll of economists had forecast a far bigger deficit of 2.8% of GDP. The rand rallied on the news to below 19/dlr, gaining close to 2% at one point to 18.83/dlr in late afternoon trade.
So, counting the rand, make that a hat-trick of good economic tidings.
“The deficit on the current account of the balance of payments narrowed to R66.2-billion in the first quarter of 2023 from a revised R155-billion in the fourth quarter of 2022,” the Sarb said.
This was driven by exports which rose despite mounting logistical woes, as Transnet continues to come off the rails.
“South Africa’s trade surplus widened from R34.2-billion in the fourth quarter of 2022 to R103-billion in the first quarter of 2023 as the value of goods exports increased more than that of merchandise imports,” the Sarb said.
Meanwhile, for the third consecutive quarter, the shortfall on the services, income and current transfer account – which includes things like tourist income – narrowed.
“… higher tourist arrivals continued to bolster services receipts,” Nedbank noted in a commentary on the data.
On the manufacturing front, data showed production in the sector in April rose 3.4% year-on-year, overshooting a Bloomberg consensus prediction of 2.0% growth.
After narrowly dodging a recession in Q1 with overall GDP growth on a quarterly basis of 0.4%, this signals that the manufacturing sector at least got off to a better-than-expected start to Q2.
So, some relatively good news all round – and on Wednesday petrol and diesel prices declined at the pump.
Still, while we may not have to drown our sorrows at the bar after this spate of data, it is premature to uncork the bubbly.
“Notwithstanding April’s better-than-expected manufacturing output growth, near-term activity in the manufacturing sector remains fragile and clouded by the unknown direct impact of load shedding, particularly during winter, logistical constraints, as well as moderating domestic and external demand,” Thanda Sithole, FNB senior economist, said in a commentary on the data.
The manufacturing sector is probably showing resilience because a growing number of factories are generating their own power from diesel or solar sources to compensate for Eskom’s inability to provide reliable electricity. That raises the sector’s costs and leaves less capital available for investment or hiring.
Other recent data has been bleak.
Business confidence in Q2 collapsed to its lowest levels since 2020, and there is no end in sight to the power crisis or the many other aspects of state failure.
Read more in Daily Maverick: SA business confidence in Q2 2023 collapses to lowest level since 2020 – RMB
Indeed, the current account data would have been better were it not for Transnet’s woes which cost R30-billion in lost exports last year for the coal sector alone. And most forecasts for economic growth this year are in the 0.1% to 0.3% range, which is lagging population growth – meaning South Africa is collectively getting poorer.
When the rand breaking below 19/dlr is good news, you know that overall, things are pretty bad. DM