India Aug'19 Trade balance data analysis - Global and domestic demand weakens further

Exports decline sharply
  1. India’s exports fell by (-) 6.1% in Aug’19 compared with a 2.2% increase seen in Jul’19. 
  2. While a part of decline can be attributed to higher base (+19.1% in Aug’18), continued weakness in global demand also remains a drag. 
  3. The drop was led by textiles (-11.6% vs 1.3% in Jul’19), engineering goods (-9.4% vs -1.7%) and organic chemicals (-9.2% vs 13.4%). 
  4. Decline in average oil prices in Aug’19 (-19.4% YoY) has led to (-) 10.7% decline in oil exports vs (-) 5% in Jul’19. 
  5. Region wise, exports to Asia-Pacific (ex-China) and Europe have continue to remain weak on FYTD basis. We expect the trend to continue as global growth remains weak. 
Imports decline further: 
  1. Imports fell by (-) 13.4% in Aug’19, a 36-month low and a third consecutive YoY decline, compared with (-) 10.4% in Jul’19. 
  2. The decline was led by (-) 62.5% plunge in gold imports from (-) 42.2% in Jul’19. 
  3. Oil imports too fell by (-) 8.9% versus (-) 22.1% in Jul’19 due to softening of global oil prices. 
  4. The contraction in non-oil-non-gold imports continued at (-) 9.3% in Aug’19 versus (-) 2.2% in Jul’19 as domestic demand remains muted. Within this, imports of pearls and precious metals (-20.5%) and capital goods imports (-20.1%) contracted the most. 
  5. Only iron and steel imports increased. 
Trade deficit contained at US$ 13.5bn: 
  1. India’s trade deficit remained stable at US$ 13.5bn versus US$ 13.4bn in Jul’19. 
  2. In FYTD20, trade deficit has fallen to US$ 72.9bn compared with US$ 83.3bn in FYTD19 as imports have fallen at a faster rate than exports. 
  3. The continued weakness in domestic demand as well as lower oil prices will help contain trade deficit at US$ 175bn in FY20 versus US$ 180.3bn in FY19, with a downward bias. 
  4. This should help ease the pressure on INR even as FII outflows continue. However, further depreciation of Yuan remains a key risk to our INR view.   

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