India July 2019 trade deficit - Eases as demand struggles


India’s merchandise trade deficit narrowed to USD 13.4 bn in Jul-19 from USD 15.3 bn in Jun-19, coming in lower than our and market consensus of USD 14.5 bn and USD 15.0 bn respectively. On a sequential basis, the increase in exports on account of oil-exports outpaced the decline in overall imports leading to a lower trade deficit print.

On annualized basis, exports increased by 2.3% in Jul-19 as against the contraction of 9.7% in the previous month. Imports on the other hand, continued to contract for the second consecutive month by 10.4%, in line with the broad based slowdown in domestic demand observed in other high frequency indicators.

Exports: Posts a mild uptick
Aggregate exports sequentially improved to USD 26.3 bn in Jul-19 from USD 25.0 in the previous month led by expansion in electronic goods, organic and inorganic chemicals and textiles, while contraction in exports of gems and jewellery, engineering goods and leather products kept the sequential increase in check. India’s export performance for Jul-19 is in line with the trend observed in other Asian countries with export growth improving marginally.

While China’s export unexpectedly rose by 3.3% YoY in July, they are likely to remain subdued in the coming quarters as any prop from weaker currency could be overshadowed by escalation of trade war and broader external weakness. The outlook for global exports remains dismal as the persistence of US-China trade war continues to cloud the economic outlook.

Imports: Suggests persistence of weak demand
Imports slipped to a 5-month low of USD 39.7 bn from USD 40.3 in the previous month. The moderation was driven by Gold (-USD 0.9 bn) and Oil (-USD 1.4 bn) imports while Non-oil Non-gold (NoNG) imports increased (+USD 1.8 bn).

Gold imports plunged to a 9-month low of USD 1.7 bn led by an increase in domestic prices to ~4% MoM tracking gains in overseas markets. Along with the surge in gold prices, the hike in import tax to 12.5% from 10% has affected the demand for the yellow metal. According to World Gold Council, gold demand is likely to remain subdued in Q2 FY20 on account of high domestic prices. Gold prices for the month of August is already trailing higher at ~4.4% MoM.

Oil imports, in line with expectations, moderated to USD 9.6 bn from USD 11.0 bn a month ago, tracking the lower  trend seen in oil prices. Further softening in crude oil prices by ~6% MoM recorded so far in Aug-19 should reflect in lower value of oil imports with a lag. With intensification of trade tensions exacerbating global economic slowdown, there is a likelihood of crude oil prices remaining ranged bound at USD 65-70 pb with down side risk.



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