South Africa's trade surplus widened to R52.8 billion in March, from an upwardly revised R31.2 billion in the previous month. This was the largest monthly trade surplus recorded since 2010. Exports jumped by 28.9%, boosted by shipments of precious metals & stones (41%); vehicles & transport equipment (32%); mineral products (22%); vegetable products (43%); and chemicals (31%). Imports, on the other hand, advanced at a slower 16.3%, lifted by purchases of chemicals (46%); machinery & electronics (20%); vehicles & transport equipment (30%); and original equipment components (15%).
Meanwhile, the manufacturing PMI continues to depict an expansion in the sector, albeit at a slower pace in April than the previous month. Interestingly, the sector continued to report improved export sales, boosted by strong global demand.
Buoyant trade surplus and manufacturers' generally positive outlook (particularly on export sales) are aligned with our expectations that SA's growth will be spearheaded by productive sectors (mainly Agriculture, Mining and Manufacturing) this year. In our view, this growth will be lifted by a strong rebound in global, and some recovery in domestic, demand.
Led by a flourishing US economy, the outlook for the global economy has brightened further in recent months. However, the resurgence of Covid-19 infections in India and neighbouring countries could affect global economic activity. The latest numbers show that India recorded over 410 000 infections, a world record, since the pandemic began. This has overwhelmed the country's healthcare system and led to significant output losses. Indeed, S&P estimates an average daily output loss of up to $210 million, shaving off approximately 2 percentage points from GDP growth.
While India accounts for 6.8% of world GDP and just 2.2% of global exports of goods and services, its overall contribution to global trade logistics is greater. For instance, the International Chamber of Shipping estimates that 15% of global seafarers (ship crew) come from India. This is concerning because there is a growing list of countries, including China, that have imposed bans on vessels and crew members that have visited India in the past three months. This could result in logistical delays, exacerbating the existing global shortages of products such as semi-conductors.
For South Africa, India is one of the largest trade partners: the two countries exchanged R108.2 billion worth of goods in 2020 (approximately 2% of SA's GDP), down from R121 billion in 2019 (the 2020 volumes were adversely affected by the pandemic). In the past two years, SA has run a trade deficit with India. For now, trade data (up to March) does not show any obvious impact of the third wave of infections on trade volumes. In fact, the first three months of the year saw increasing trade, reaching a value of R11.5 billion in March, the highest since September 2020. Nevertheless, there could be seasonality factors (trade tends to slow toward year end and jump in the first three months of the year). The April trade data will indicate whether there have been trade disruptions between the two countries.
We believe the impact will likely be more visible on SA's export volumes, particularly mineral products. India is the second-largest buyer of our minerals after China, and approximately 75% of all our exports to India comprise mineral products.
Week in review
New vehicle sales jump on low base effects
As expected, the disruptions in Naamsa vehicle sales data has seen an unusually high year-on-year growth rate in April 2021. The disruptions were especially true for April 2020 when only a few vehicles were sold to essential services providers, including the government, due to lockdown restrictions. The Naamsa data shows that there were 35 779 new vehicles sold in April 2021 relative to only 574 vehicles sold in April 2020. Year to date (January to April), total new vehicle sales are up by 28.3% y/y relative to the same period in 2020, with sales of passenger vehicle being up by 20.3% and commercial vehicles up by 45.9%. Notably, besides the unusually high year-on-year growth in April, total new vehicle sales contracted by 17.6% m/m. Within the various sales segments passenger vehicle sales declined by 13.9% m/m, light commercial vehicle sales contracted by 24.3% m/m, medium commercial vehicle sales contracted by 24.2% m/m, heavy commercial vehicle sales contracted by 34.2% m/m, extra heavy vehicle sales declined by 10.7% m/m, and sales of buses declined by 7.5% m/m.
Total new vehicles sales exports amounted to 26 522 in April compared to 39 141 in March. Despite lower exports in April relative to March, month-on-month growth in new vehicle export sales averaged 30% in 1Q21 as the external environment remained supportive.
We will monitor monthly domestic vehicle sales and export sales for any evidence of strength or weakness in the automotive sector.
Manufacturing PMI shows sustained expansion
The manufacturing PMI (seasonally adjusted) pulled back slightly to 56.2 index points in April from 57.4 in March, reflecting broadly expansionary operating business conditions, though less than the previous month. Nevertheless, the index is currently 2.5 points above the average recorded in 1Q21 and 26 points above the April 2020 print, at the height of South Africa's lockdown restrictions.
Notably, all five PMI subcomponents were above the neutral mark for the first time since 2012. Business activity (i.e. productivity) continued to increase in April, albeit at a much slower pace compared to the previous month, decelerating to 50.8 points in April from 56.1 in March. Similarly, the new sales orders index (proxy for demand) remained robust, although also increasing at a slightly slower pace than in March. The index fell back to 58.7 from a solid 60.4 points in March. Interestingly, purchasing managers continued to report improved export sales, presumably benefiting from a lift in global economic activity. The inventories index also declined slightly in April, but remained firmly above the neutral 50-point mark for the third straight month. Surprisingly, the employment index soared past the 50-point mark, to reach its highest level since 2007. While positive, at this stage we are hesitant to conclude that there is sustained job creation in the sector.
The forward-looking indicator, i.e. expected business conditions in six months' time, turned notably more upbeat. The index rose to a three-year high of 67.9 points from an average of 58.5 points recorded in the first quarter of 2021.
Overall, the PMI results are encouraging and indicate sustained improvements in manufacturing sector conditions, driven by robust global demand and improvements in domestic demand conditions. Nevertheless, these results must be weighed against risks emanating from a possible third wave of infections as well as rising cost pressures (due to the high rand price of fuel) which could sour sentiment in the short term. Electricity shortages are another risk that could constrict production, especially as we move into the winter season.
Week ahead
Next week Stats SA will publish manufacturing and mining production data for March 2021. This data will provide a clear picture of how the manufacturing and mining sectors contributed to 1Q21 real GDP growth. Manufacturing production, which will be released on Tuesday, is expected to have posted meagre growth of 0.4% y/y (0.3% m/m) following a contraction of 2.1% y/y (1.2% m/m) in February. Coming out on Thursday, mining production is expected to have posted strong growth of 9.4% y/y in March from a growth of 0.8% y/y in February.
