ECONOMIC WEEK AHEAD: Trade balance and producer inflation in focus

The trade surplus is forecast to be R28.3bn in March, riding high on the continued buoyancy of commodity prices

SA’s trade balance data is likely to be the highlight this week, along with the release of producer price inflation, which picked up in March as a result of higher fuel prices.

Elevated commodity prices and the continuous recovery in the global demand for manufactured goods are expected to have lifted SA’s export performance, helping the country register yet another trade surplus, according to Investec economist Lara Hodes.

The trade surplus is forecast to come in at R28.3bn in March, according to a Bloomberg median forecast, easing just slightly from a surplus of R29bn in February. The SA Revenue Service (Sars) will release the trade balance data on Friday.

Perceptions of a rebound in the global economy from the Covid-induced setback have boosted demand for commodities such as platinum group metals, which are used to clean the emissions of internal combustion engines.

Commodity prices have significantly risen since the second half of 2020 in particular, though they have since stabilised at elevated levels.

“So far this year, mineral sales have become even more rampant, with a further increase of more than 25% over the 2020 figure. To put the value of mineral sales of R120bn during January and February into perspective, it is equal to the total output of the agricultural sector in 2020,” according to independent economist Roelof Botha.

“A direct consequence of the sterling performance of the mining sector is a handsome cumulative trade surplus for January and February, namely more than R41bn. An indirect consequence that has an important bearing on the future direction of monetary policy is the impact on the value of the rand exchange rate.”

The rand has been particularly strong against the dollar, breaking below R14.20/$ for the first time in 15 months in mid-April before pulling back to R14.25 by Friday. The stronger rand has the potential to keep a lid on inflation, which rose to an annual rate of 3.25% in March, from 2.9% in February, though it was below the 4.5% midpoint targeted by the Reserve Bank.

The benign inflation outlook could encourage the Bank to keep interest rates at the record low of 3.5%, to help the economy recover from the ravages of Covid-19.

Stats SA will release the producer price index (PPI) for March on Thursday. It is likely to have accelerated to an annual rate of 4.6% in March, from 4% in February, according to a Bloomberg median estimate.

Hodes said: “A key contributor to the March outcome is likely to be the petroleum category, which comprises 19.56% of the PPI basket. A higher rate of inflation in the petroleum category is expected on the March fuel price increases of 65c/l and 56c/l for petrol and diesel, respectively. Additionally, low statistical base effects will serve to buoy the year-on-year inflation rate.”

Private sector credit extension data for March will also be released on Friday by the Bank.

There is a possibility that private sector credit extension contracted 0.2% year on year in March, after rising by an annual rate of 2.6% in February, she said.

“The expected contraction is ascribed to strong statistical base effects in the corporate credit category, which constitutes over half of total credit extension and so the impact is meaningful.”