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South Africa's economy and the Baltic Dry Shipping index
Date: 30 July 2018 Category: Economics |
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We take a look at South Africa's economic growth rate and compare it to the growth in the Baltic Dry Shipping Index (BDI), which is used as a proxy for measuring dry freight shipped across the globe. The reason we are looking at this index and South Africa's economic growth is the fact that South Africa is a very open economy, with imports and exports amounting to roughly 60% of South Africa's total GDP. Just showing how dependent South Africa's economy is on international trade. And if the Baltic shipping index is to slow down, it might indicate less international trade and slow downs in international economies and could therefore be a leading indicator of future economic activity in South Africa
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South Africa's economy vs Baltic Dry Shipping Index
The line chart below shows South Africa's GDP on the right axis and black line compared to the Baltic Dry Shipping index on the left axis and light blue line. The data is lagged by two quarters. Basically what we are saying is it takes two quarters for the movements in the Baltic Dry Shipping index to affect the economy of South Africa.
From the graphic it is clear that the trends in the Baltic Dry Shipping index and that of South Afriac's economy is very similar, when the Baltic dry shipping index is lagged by two quarters. The correlation between the two time series is 0.549, or 54.9%. One this means is that 54.9% of the movements in the one time series can be explained by the movements in the other time series. This shows that there is a relatively strong relationship between the two.
Again this is not unexpected as the BDI is a proxy for dry bulk shipping and dry bulk is mostly made up of raw materials used as inputs in the production of goods, with South Africa being a large exporter of raw materials used in production and consumption such as coal and iron ore it is no real surprise that the movements of the index and the movements in South Africa's economy is very similar, considering trade makes up such a large part of South Africa's economy.
The graphic below shows the percentage trade (both imports and exports combined) makes up of South Africa's total economy over time.
Again this is not unexpected as the BDI is a proxy for dry bulk shipping and dry bulk is mostly made up of raw materials used as inputs in the production of goods, with South Africa being a large exporter of raw materials used in production and consumption such as coal and iron ore it is no real surprise that the movements of the index and the movements in South Africa's economy is very similar, considering trade makes up such a large part of South Africa's economy.
The graphic below shows the percentage trade (both imports and exports combined) makes up of South Africa's total economy over time.
The line graph above shows that South Africa's trade makes up a massive chunk of its overall economy, and that over time the dependence has started to increase, as the value of total trade was sitting at roughly 54% of South Africa's GDP, in the latest quarter it is basically sitting at 60% of South Africa's GDP. And as we mentioned in the past, the dependence on foreign trade by South Africa could lead to future economic problems, should supply of goods from other countries dry up, or suppliers decide to push up prices of goods shipped to South Africa as they know South Africa either cant produce the items or cannot live without them. It is a pretty exposed position to be in, and one we are hoping the South African government is trying to address, by setting policies to boost local production and consumption of goods and services instead of the the continued dependence on international trade.