Four-month low for trade in face of third wave

Trade conditions were tough in May as SA businesses braced for a third Covid-19 wave, according to the SA Chamber of Commerce and Industry (Sacci).

Prospects for stricter lockdown hit almost all elements of trade in May with lower sales orders and disruption of deliveries, said Sacci. The chamber’s seasonally-adjusted trade activity index for May slumped to 36 points from 49 in April, its lowest reading since January 2021.

The index runs from 0-100, with 50 its neutral level and it is a measure of sentiment on current conditions. The subindex for sales volumes fared worst in May, falling 15 index points to 35.

The survey takes into account the trade expectations index (TEI), which gauges sentiment on conditions six months hence. The TEI dipped three percentage points to 56, but this does show businesses are mostly optimistic about conditions towards end-2021. This is the composite index of expectations on sales volumes, new orders, supplier deliveries, inventory levels and employment.

“The greater awareness by the government of the business and economic effect of the lockdown process appears to have a less inhibiting effect on trade conditions,” the chamber said.

Sacci CEO Richard Downing said global conditions remained supportive, but it was less clear that activity in SA was ramping up as quickly. For example, the mining industry may not be benefiting from surging commodity prices as much as it should, he said, given regulatory uncertainty and other structural issues, such as load-shedding.

“I don’t think we are out of the woods yet. There is still some uncertainty and hesitancy,” said Downing.

But there is still optimism that conditions will improve in the coming months.

SA’s positive trade balance in 2021 has been beneficial to the rand, with surging commodity prices helping the country to its second-largest current-account surplus in history in the first quarter of 2021. A currentaccount surplus means that foreigners do not need to buy local assets, such as bonds, to make up the shortfall.

If such interest in local assets were not forthcoming, that would weaken the rand.

The expected improved trade conditions could be met by relatively stable sales prices, though the inflationary process might be fuelled by a cost push side with higher fuel prices and increased water and electricity tariffs.

Prospects for employment and expected higher input costs were the only elements seen to weigh negatively on trade conditions in the next six months, said Sacci. “The strong rand made local manufactured goods less competitive to imported goods, but merchandise export trade is experiencing exceptionally buoyant conditions at present,” said Sacci.