India: The merchandise trade deficit hits an over five-year high in June, despite solid exports
July 13, 2018
In June, merchandise exports expanded 17.6% compared to the same month last year, down slightly from the 20.2% expansion recorded in May and totaling USD 27.7 billion. The fastest growing categories of exports in June were petroleum products, chemicals, and drugs and pharmaceuticals, in descending order.
Annual growth in the 12-month trailing sum of exports accelerated to 11.0% in June from 9.9% in May. The sum of exports in the 12 months up to June was USD 313 billion, up from USD 309 billion in May.
Meanwhile, merchandise imports surged 21.4% in June (May: +14.8% year-on-year), with imports totaling USD 44.3 billion. June’s strong reading came on the back of a 56.6% increase in oil imports.
The 12-month trailing sum of imports increased 15.0% in May, less than 16.3% in April. Consequently, the 12-month total of imports reached USD 475 billion in June, above May’s USD 467 billion.
The merchandise trade deficit grew to USD 16.6 billion in June from USD 14.6 billion in May, owing to the higher import bill. Looking ahead, the deficit is likely to remain large in the coming months. Indian exporters—who are exempt from the Goods and Services Tax (GST)—continue to be weighed on by delayed GST refunds. Moreover, the Reserve Bank of India is tightening trade credit standards. The recent China-U.S. trade policy spat also adds uncertainty for the external side of the economy, as the U.S. is India’s largest export market and China is India’s largest import market. In addition to the already bleak outlook, our panelists expect high global oil prices will weigh on the balance of trade this fiscal year and lead to a widening in the current account deficit.
India Trade Balance Forecast
FocusEconomics Consensus Forecast panelists expect exports to grow 12.2% in FY 2018 and 8.4% in FY 2019.
Author: Edward Gardner, Economist