One of the few silver linings for countries that suffer a devaluation of their currency is that their exports can become more competitive.
South Africa – like other members of the so-called “fragile five” (Brazil, India, Indonesia and Turkey) – clung to the hope of an export rebound as the rand sank by 30 per cent over 2012 and 2013.
But, analysts say, exports have been frustratingly sluggish to pick up, raising questions over whether South Africa can sustainably reduce a current account deficit that stood at 5.1 per cent of GDP in the final quarter of 2013. (A large current account deficit, of course, is the main criteria for membership in the “fragile five” club).
On Monday, India’s gold industry went on strike, a symbolic protest against government efforts to curb official imports and limit smuggling of the yellow metal.
The strike has added to pressure on New Delhi to roll back recent hikes in duties and quantitative restrictions on gold imports, which are crippling the trade. But what will happen when a new government comes into power following this year’s general election?
India’s policy makers clamped down on gold imports last year, repeatedly hiking duties and introducing quantitative restrictions which squeezed supplies and pumped up premiums in the local market.
As a result China knocked India off the top spot to become the world’s biggest gold market in 2013, according to research by the World Gold Council (and as beyondbrics predicted a while before). What’s surprising is that demand for the yellow metal is still growing rapidly in India, where love for gold is deeply ingrained in culture and religion.
Restrictions on India’s gold imports will be reviewed by the end of March if concerns over the country’s external balances ease up, India’s finance minister, Palaniappan Chidambaram, said on Monday.
As the second largest gold importer after China, any shift in India’s import policies could have an influence on world markets. However, much depends on how policymakers judge their progress in bringing down the current account deficit.
India’s external balances have been a focal point this year as the country’s economic woes have centred around the depreciation of the rupee.
So policy makers will be pleased to see India’s trade deficit narrowing yet again. The gap was squeezed to $9.2bn in November from $17.2bn in the same period a year earlier, according to new data from the Ministry of Commerce and Industry. Good news?
The IMF’s 3-year $6.6bn loan to Pakistan has come just in time. As the FT reported, the loan may “stave off a balance of payments crisis, cheering investors concerned that foreign reserves had sunk to about six weeks worth of imports.”
Chart after the break.
The Indian rupee is down by over 10 per cent since May. While that may hurt some of the poorer off in society as prices of imported goods pick up, the better off may notice less.
But here’s a little kick for the privileged: prices are rising rapidly in fine dining restaurants.
It’s becoming a familiar phrase: The Indian rupee has hit yet another record low, dropping below Rs61 to the dollar on Monday.
There are a few things the government could to do to stem the fall, but with an industry survey suggesting further depreciation of the rupee, the records could keep on coming.
For the second time this year, the Indian government has hiked duties on gold imports.
As Indian buyers are famously price insensitive when it comes to their favourite yellow metal, this may not be the most effective way to stem inflows of gold and limiting the current account deficit. But at least it will make a bit of money for a cash-strapped administration and help with the country’s considerable fiscal shortfall.
Salman Khurshid, India’s foreign minister, is back from a trip to China last week, happy to see the end of a tense stand-off over a long-running border dispute. Settling that issue will re-open the way for a planned visit by Chinese Premier Li Keqiang to India and allow the two countries to concentrate on the big topic on Khurshid’s agenda: trade.
But here, too, relations between the region’s big powers are not entirely friendly.
In the run up to this month’s trade data from South Africa, there were a couple of different theories doing the rounds.
One was that the deficit would get a lot worse, based on a the timing of holidays and the recent industrial unrest (hurting exports); the other was that the trade account would get a lot better, based on the weakening rand and a pick up of exports to China. The Bloomberg analysts consensus was for a slight improvement at R8.5bn ($945m) deficit.
Which was right?
It may not be a surplus, but it’s some positive economic news for India: the trade deficit has narrowed again.
Data published by the Ministry of Commerce and Industry show that the trade gap declined to two-year low of $10.3bn in March – compare that with the deficit of $14.9bn in February and $13.5bn in March 2012.
India’s trade gap has narrowed to $14.9bn in February, down from $20bn a month earlier and $17.7bn in December – on the surface an improvement, but there are worries lurking underneath.
According to data from the Ministry of Commerce and Industry on Monday, exports rose 4.2 per cent year-on-year to $26.3bn in February, while imports grew at a slower 2.7 per cent over the year to $41.2bn. Compared with January, imports have actually fallen from $45.6bn and exports are up from $25.6bn.
Ouch. This isn’t any old trade deficit, this is a record trade deficit. South African imports minus exports hit R21bn ($2.4bn) in October, a far cry from many analysts’ predictions of around R15bn.
The trade deficit was R13.8bn in September. So what’s gone wrong? As so often in recent economic data releases, mining troubles are part of the picture but there’s more to it than that.
China’s exports of machinery and transport equipment will increase more than threefold in the ten years to 2020, as emerging economies in the Asia Pacific shift to producing higher value-added goods. The region’s other big exporters will also see big gains, including South Korea, Thailand and Indonesia.