Spike in trade deficit a cause for concern

By: |
Published: November 20, 2017 3:35:30 AM

As Coal India ramps up production, this may reverse. Jewellery and textiles drove the export disappointment: Some decline in jewellery exports was expected, given the import restrictions in the UAE, but the extent was surprisingly large.

 

While fall in October exports seems a blip rather than trend, fog on economy now extends to currency, even if 12M outlook is benign.

Oct-17 trade deficit widened $5 billion month-on-month to $14 billion, the 2nd highest in three years as exports fell 1% year-on-year (vs +26% year-on-year in Sep). Import growth moderated to 7% year-on-year from 18% in Sep. Ex-oil and jewellery imports/exports grew at 4.7/2.5% year-on-year. Rise in prices drove the bulk of the surge in oil imports (demand growth was just 1% in Oct). Nov oil prices are averaging $8/bbl over the Sep-17 average (on which Oct imports are priced) and $14/bbl over the FY17 average. If $63/bbl sustains for a full year, the full-year impact on the trade deficit would be ~$15 billion. The pick-up in coal imports (low stock at power plants + 38% rise in thermal coal prices) may be temporary though. One hopes the drop in textile exports to revive too (may have been disrupted by GST); fall in jewellery exports (UAE restrictions), may not.

 

The $15-20 billion BoP surplus in the last several years was more than the rise in the oil import bill, and the Oct export drop was likely a blip rather than a trend. However, the fog on the economy now extends to the currency as well. RBI though has the ammunition to prevent sharp downward moves in the Rupee. 2nd highest trade deficit in three years: Oct-17 trade deficit widened $5 billion m-o-m to $14 billion, the 2nd highest in three years as exports fell 1% y-o-y (vs +26% y-o-y in Sep-17). Import growth moderated to 7% y-o-y from 18% in Sep. Ex-oil and jewellery imports/exports grew at 4.7/2.5% y-o-y.

$63/bbl for FY implies $15 billion rise in oil imports over FY17: Rise in oil prices drove the bulk of the increase in oil imports (consumption growth was just 1% in Oct). Oil prices are averaging $8/bbl over the Sep-17 average (on which Oct imports are priced). If $63/bbl sustains for a full year, the increase over the FY17 average would be ~$ 15 billion. Record low coal inventories at power plants, with a 38% y-o-y increase in global prices, drove the upside surprise on coal. As Coal India ramps up production, this may reverse. Jewellery and textiles drove the export disappointment: Some decline in jewellery exports was expected, given the import restrictions in the UAE, but the extent was surprisingly large. Textile exports dropped too — this could be due to supply chain pressures caused by the GST transition. Steady growth in engineering goods exports, mostly metals, continues.

Currency volatility may last, even if 12M outlook is good: The BoP surplus in the last several years has been $15-20 billion, more than the rise in the oil import bill. An improving global economy likely means the Oct export drop was a blip rather than a trend. However, the fog on the economy (the inability to say with confidence what is steady-state, and what may not last on most macroeconomic parameters) now extends to the currency as well. RBI has the ammunition to prevent sharp downward moves in the Rupee.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop