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Since When Does an Improvement in the Trade Balance Signal Economic Recovery?

Sandeep Mahajan's picture

Something is  not quite right with this picture.

There has been somewhat of a celebration lately in the South African press and markets, sparked by news that the external trade balance was moving into positive territory following several months of trade deficit.

The fact that three consecutive months of trade surplus (May-July 2009) were recorded for the first time in 6 years has made it even more special. Market analysts have exulted that “South Africa's economy was likely to recover as the balance of trade improved," [which] "underscores our bullish outlook for the current account deficit." The positive mood further whetted the appetite of foreign investors, who have poured more than $7 billion into the Johannesburg Stock Exchange in 2009 thus far, bolstering the Rand to a one-year high against the US Dollar by end-August. 

 

The problem is that, as a recent article in the Business Day “Currency free-for-all dashes any hope of recovery in SA” makes clear, the improvement in the trade balance may not be reflecting economic recovery as much as weakening of domestic demand, particularly private investment. This can be seen in the graph below, which shows a steeper decline of imports than of exports. Capital goods fell at an astonish rate of 33% y/y (in nominal Rand terms) in July 2009, perhaps undermining prospects of near-term recovery in manufacturing activity.

Something is  not quite right with this picture.

Comments

Submitted by Andrew Shiloh Selassie on
The past month I have read the World Bank will be providing extra funding to the Ethiopian Regime to help finance the countries food shortages. This sounds good on the outset, but the majority of Ethiopian know their land is blessed with an abundance of fertile land and natural resources which need to be exploited to the benefit of all Ethiopians. Under the Constitutional Monarchy of a founder of the World Bank, HIM Haile Selassie, entitled every Ethiopian 1 gasha of freehold land to be past down from generation to generation in order to increase their standard of living. For 35 years, The past and present regimes of secession claim to own all rural landholdings, which affects the Ethiopian poor majority, who cannot afford the leases imposed on them by force, which resullts in high unemployment and malnourishment. The current regime has continued to sell off large tracts of fertile land to foreign investors, without making a real contribution to the development and welfare of the Ethiopian people. Ethiopia can solve her own problems, foreign assistance is welcome providing it makes a real contribution to the development and welfare of the Ethiopian people. At the G20 meeting in London earlier this year the regime had gained billions in financial assistance, a week later it announced it will be building an ammunition and arms factory in Ethiopia. The intentions of the regime of secession are clear, to benefit the minority in power at the expense of the majority whom are oppressed by force. "Ethiopians are members of one closely knit family, in these circumstances it is neither fair nor legitimate for the interests of one group of this great family to be promoted at the expense of the other." Haile Selassie, The father of African Unity, founding member of the United Nations and Defender of Faith. Last year in Shashamane, Ethiopia, American donated wheat was being sold in the markets for 300 birr whilst Ethiopian grown wheat was selling for 800 birr, which made life more difficult for the poor and malnourished. The World Bank should seriously reconsider its involvement with the corrupt regime in Ethiopia, instead it should channell its financial resources through the specialized agencies of the United Nations and the Crown Council of Ethiopia. GOD BLESS

Submitted by Supreet Malhotra on
That was quite an informative article Sandeep!

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