India: The merchandise trade deficit widens further in July
August 14, 2018
In July, merchandise exports increased 14.3% compared to the same month last year, down from the 17.6% expansion recorded in June and totaling USD 25.8 billion. In descending order, the fastest growing export categories in July were petroleum products, gems and jewelry, and chemicals.
Annual growth in the 12-month trailing sum of exports accelerated a tad to 11.8% in July from 11.0% in June. The sum of exports in the 12 months up to July was USD 316 billion, slightly higher than June’s USD 313 billion.
Meanwhile, merchandise imports surged 28.8% in July (June: +21.4% year-on-year), with imports totaling USD 43.8 billion. July’s strong reading was primarily due to a 57.4% increase in oil imports. Non-oil imports also rose strongly, with growth of 20.2%.
The 12-month trailing sum of imports increased 16.4% in July, up from 15.2% in June. Consequently, the 12-month total of imports reached USD 484.6 billion in July, more than June’s USD 475 billion.
The merchandise trade deficit grew to USD 18.0 billion in July from 16.6 billion in June, the widest since May 2013. 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 hindered by delayed GST refunds. The ongoing trade war between China and the United States 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. Moreover, our panelists forecast higher global oil prices this fiscal year compared to last year.
India Trade Balance Forecast
Our panelists forecast that exports will expand 11.8% in FY 2018 and imports will rise 15.0%, bringing the merchandise trade deficit to USD 190 billion. In FY 2019, we expect exports will expand 8.4%, while imports will rise 7.6%, resulting in a merchandise trade deficit of USD 202 billion.
Author: Edward Gardner, Economist