South African trade grows on a rallying tide of products …
The extent of the rally in commodity prices far exceeded most expectations and surprised market analysts. (Photo: Simon Dawson / Bloomberg via Getty Images)
Dynamic global trade and record commodity prices continue to support South Africa’s healthy trade balances. But the government cannot count on this as its only source of economic dynamism.
An impressive recovery in world merchandise trade and an average 30% rise in commodity prices over the past year has provided a much needed boost to the South African economy at a time when good news is scarce .
News last week that the value of exports hit a record high in March summed up both the growing global demand for goods requiring commodities as inputs and the escalation in their prices as a result.
The extent of the rally in commodity prices far exceeded most expectations and surprised market analysts. The IMF All Commodity Index rose 26.8% in the past year, copper prices hit a 10-year high of over $ 10,000 per tonne, palladium and iron ore hit all-time highs at some point last week and most other commodity prices are now above their pre-pandemic prices.
Winds in favor of a much faster-than-expected recovery in commodity prices include increasingly optimistic global growth forecasts and anticipated demand for large green infrastructure investment programs planned in developed and emerging markets.
The global economic outlook continues to improve. The United States grew 6.4% in the first quarter and Bloomberg Economics forecasts second quarter growth to reach 9.6% in the second quarter, pushing it above its level of growth of before the crisis. Sentiment towards the eurozone has improved compared to expectations that the region’s economy may have turned the corner.
The South African economy has been a major beneficiary of this favorable global momentum, with trade figures significantly exceeding expectations for some time now – and in March this trend continued.
Absa’s business team said the March trade surplus was more than double its forecast of R26 billion and Thomson Reuters consensus of R25 billion. The latest figures saw the quarterly trade surplus rise to 485 billion rand in the first quarter, seasonally adjusted and annualized, compared to 425 billion rand in the fourth quarter of last year and 451 billion rand in the third quarter.
The Bureau for Economic Research points out that South Africa’s cumulative trade surplus has tripled in the first three months of the year to almost 97 billion rand.
The sharp increase in commodity prices has been the main contributor to improving South Africa’s trade situation, supported by rising export earnings from precious metals, base metals, mineral products and precious stones.
According to Absa economist Peter Worthington, prices for South Africa’s main commodity exports have generally continued to recover strongly in 2021, which is likely to have contributed significantly to the rise. export earnings. He says that even with the gradual improvement in imports, the rebound in commodity prices, which were “a little higher than our second-quarter assumptions,” indicate strong trade surpluses in the months ahead.
According to Nedbank economist Isaac Matshego, the export figures also reflect the benefit of normalizing mining operations after the local lockdown and global restrictions affected production and trade in the first quarter of 2020. “These factors offset the impact of a firmer rand, ”he says.
May these favorable winds last for a long time and, if the World Bank’s semi-annual commodity price forecast from the Commodity Market Outlook and Oxford Economics’ forecast for merchandise trade are anything to say, it seems that these favorable conditions could last for some time.
The World Bank expects energy prices to be more than a third higher on average this year compared to 2020, with oil averaging $ 56 a barrel. Meanwhile, the prices of metals, such as copper and iron ore, are expected to rise 30% and agricultural prices are expected to rise nearly 14%. “Almost all commodity prices are now above pre-pandemic levels,” he says.
On trade flows, Oxford Economics economist Adam Slater said global merchandise trade has now returned to its pre-pandemic trend and expects it to continue to grow by 10.5%. % this year, compared to a 6.1% contraction in merchandise trade last year.
“The rebound in merchandise trade has been much faster than after the global financial crisis, even with the many coronavirus restrictions still in place,” he notes, adding that all regions are recovering well. Emerging markets and advanced economies have seen similar trade rebounds, with the resumption of trade flows in advanced economies starting earlier.
On a note of caution, the World Bank says that while the commodity situation looks good, the sustainability of price increases is not certain.
“A faster than expected withdrawal of stimulus measures by some large emerging market economies could present a downside risk to prices; however, a major infrastructure program in the United States could support the prices of metals, especially aluminum, copper and iron ore. An intensification of the global energy transition towards decarbonization could further strengthen the demand for metals. “
As such, he urges emerging markets to put in place measures to “strengthen their short-term resilience and prepare for a possible loss of momentum” in metal prices.
The Special Focus section of the bank’s semi-annual commodities report calculates that base metals, particularly copper and aluminum, contribute about 35% of emerging market export revenues. He warns that a slowdown in global economic conditions would have adverse effects on economic growth, macroeconomic stability and, of course, poverty reduction.
“Windfall revenues from high metal prices, which tend to be short-lived, should therefore be set aside in anticipation of the longer-term negative effects of price slumps that would warrant political support.”
So while the latest South African trade statistics are to be celebrated, the government cannot rest on its laurels as the implementation of all promised economic initiatives and policy measures remains imperative if we are to see domestic economic recovery s ” broaden and deepen enough to support in the event of a commodity price reversal. DM / BM