India: Lacklustre non-oil exports widen trade deficit – Nomura

Analysts at Nomura note that India’s export growth moderated to 9.1% y-o-y in January from 12.5% in December, indicating some loss of momentum for the second straight month.

Key Quotes

“We estimate that export (ex-oil) volume growth contracted 0.6% y-o-y from 3.9% in December, owing to weakness in labour-intensive, electronic goods and agriculture goods exports.”

“Import growth rose to 26.1% y-o-y from 21% in December; oil imports accelerated, gold imports contracted pre-budget, while imports ex-oil, gold growth (core imports) rose to 24.4% from 12.8%. We estimate that core import volume growth rose to 15.6% y-o-y in January from 6.3% in December, led mainly by commodity imports. The trade deficit widened to USD16.3bn in January from a deficit of USD14.8bn in December, worse than expected.”

“Overall, the trade data suggest that the global recovery’s benefits to exports are partly being undone by the ongoing cash crunch that is hurting labour-intensive exports, even as higher commodity prices and improving domestic demand are significantly widening the trade deficit.”

“Does this change your economic view? Yes. In 2018, we expect the current account deficit to widen to 2% of GDP from 1.5% in 2017. Today’s higher-than-expected trade deficit data suggest the deficit could be wider still. While funding should not be an issue, we expect the basic balance of payments (current account + net FDI) to turn negative.”