South African current account deficit has fallen notably recently. Trade balances have the potential to create some interest. That is certainly the case in South Africa today. This has to be seen against the background of financing difficulties amongst the Emerging Markets as regards their external balance.
"That is due to a rise in exports. Initially that sounds like good news, but it isn't really. The improvement in exports is only visible in the South African currency. And of course the rand has depreciated notably recently and it therefore does not surprise that exports in rand rose", says Commerzbank.
But what about the imports? Imports did not rise denominated in rand even though they became notably more expensive of course. So if one wants to look at the data without the currency turbulence it is worth looking at the development of foreign trade in USD. That leaves only the collapse of imports that improved the trade balance and thus the current account.
At that stage it is no longer that easy to interpret the data. Might the collapse of the imports be the first sign of any difficulty financing these? In that case the improvement of the current account would be no more than a current account crisis.
The weak currency would fit the picture. A further fall in imports today would confirm this impression and would be a reason to take a more critical view of the rand.
