There are some signs, a new Barclays report asserts, that South Africa’s balance of trade in manufactured goods is starting to improve, helping to offset worsened terms of trade brought about by a decline in commodity prices.

Speaking at the release of the quarterly report on Thursday, economist Peter Worthington said that South Africa was facing ongoing domestic challenges, which were being exacerbated by global risks.

However, one “bright spot” was the recent recovery in the country’s trade-balance data – an improvement that took hold despite South Africa’s terms of trade being at their weakest level “in a number of years”, owing partly to a decline in coal and iron-ore prices and a rise in oil prices.

Following dismal merchandise trade balances in January and February, there had been a rebound in March and April, leaving the performance for the year-to-date slightly ahead of 2013 and 2014.

“We started the year very poorly and it just got worse, so that by February we were looking at a cumulative deficit which was much bigger than we had experienced in any of the previous five years. But then we had a good March trade print; April was also quite good. Then in May, we actually had a surprise surplus, partly on the back of improving balance of trade in the export of manufactures.”

Worthington pointed to record vehicle exports of 33 441 units in May as a highlight and indicated that Barclays would be closely monitoring the export performance of manufactured products, including vehicle exports.

“I’m really keen to track the performance, because the export of manufactured goods is really potentially what is going to rescue South Africa from the commodity price doldrums that we are languishing in at the moment. We’ve been waiting a long time for export response to the weaker currency, and we may now be starting to see it.”

The current account deficit narrowed in the first quarter of 2015 to 4.8% of gross domestic product (GDP) from 5.1% in the last quarter of 2014. However, this related primarily to a large improvement in dividend inflows, with the trade accounts deteriorating to -1.8% of GDP, as higher exports of manufactured goods were offset by lower exports of commodities such as coal and platinum group metals.

Barclays was forecasting the current account deficit would narrow to 4.3% of GDP this year from 5.4% in 2014, with the “continued deterioration in the terms of trade hinting at downside risks”.

Another risk related to South Africa’s sensitivity to key portfolio capital flows, which remained vulnerable to shifts in risk sentiment, with Barclays seeing the main risk relating to the US Federal Reserve’s interest rate “normalisation”.

“Overall, we see some easing of the current account deficit, but the country remains vulnerable to a sudden abatement of capital inflows, especially once the Fed starts to hike.”