TRADE conditions remained restrained and deteriorated further into the contractionary territory in February and March, due to lower export volumes as a result of a number of issues.
The South African Chamber of Commerce and Industry (Sacci) said last week that trade conditions were hampered by logistical issues at ports, supply chain disruptions, higher inflation, and rising interest rates.
Sacci said sluggish economic growth had a significant impact on the trade environment, while lower export volumes led to cautionary and selective spending by businesses and households.
As a result, trade conditions became restrained after bordering on positive territory in January.
Sacci’s Trade Activity Index (TAI) fell from 48.1 index points in the fourth quarter of 2021 to 43.1 index points in the first quarter of 2022.
Sacci economist Richard Downing said that despite the fact that easier Covid-19 regulations aided in the normalisation of economic conditions, the Russian/Ukraine conflict had increased global uncertainty.
The war in Ukraine has disrupted global supply of agricultural produce such as grains, wheat and sunflower oil while also raising the global price of commodities such as Brent crude oil.
The Russia/Ukraine war and uncertainty about the speed at which oil supply will increase continue to pose upside risks to the oil price, and the war poses a major downside risk to economic growth and the inflation outlook.
“Inflationary pressures continue to loom on both the input cost and demand sides, and respondents expect the inflationary process to accelerate,” Downing said.
“Rising fuel prices, wage demands, and higher interest rates are putting a strain on business profitability in the trade environment, and more than 80 percent of respondents anticipate rising sales prices and input costs.”
Sacci added that trade expectations for the next six months had also fallen, with the Trade Expectations Index falling 6.9 index points month on month.
It said sales volumes, supplier deliveries, and inventories were all negatively impacted in February.
Downing said respondents listed load shedding, dysfunctional local governments, law and order, and logistical transport issues as pressing external factors restraining trade conditions.
“Although sales volumes improved slightly in March, new orders, in particular, remained subdued,” he said.
However, expectations on all major trade components improved significantly in March, with the seasonally adjusted Trade Expectations Index increasing by 17 index points between February and March.
Sacci said unaffordable wage demands in the current economic climate had contributed to tight and negative employment in the trade sector.
Only 28 percent of respondents said they were hiring more people right now, despite the fact that improved trade expectations may result in more job opportunities, which are still in the negative.
BUSINESS REPORT ONLINE