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India June 2019 Trade balance analysis - exports contract first time in 2019, imports moderate
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India’s trade deficit remained little changed in the month of Jun-19 coming in at USD 15.3 bn (vs. USD 15.4 bn in May) in line with market expectations. Both exports and imports recorded a moderation in the month from near record highs in May, with decline in imports outpacing that of exports, albeit marginally. For Q1, cumulative exports stand at USD 81.1 bn compared to USD 82.5 bn a year ago, while imports stand at USD 127.04 bn vs. USD 127.4 bn a year ago – implying a status quo compared to Q1 last year. 

Exports: De-grow for the first time in 2019

Aggregate exports slipped more than expected to a 15-month low of USD 25.0 bn in Jun from USD 30.0 bn in May. The extent of moderation was higher than expected, but not surprising amidst the slowdown seen in Asian economy exports’ in the month and also domestic new export orders (to a second slowest level in over a year, at 52.8 in June from a 3 month high of 53.6 in the previous month, led by capital good export orders).On a sequential basis, export growth contracted by a sharp 16.6% MoM, a much stronger withdrawal compared to an average seasonal contraction of 3.4% recorded over the last 5 years in the month of June.

Among the product categories, the MoM slowdown was predominantly led by oil exports (-USD 2.4 bn), engineering goods (-USD 0.9 bn), Gems and jewellery (-USD 0.3 bn) and textiles (-USD 0.3 bn). Cumulatively, these 4 sectors account for nearly 54% of total exports. On an annualized basis, exports registered de-growth of 9.7% in June compared to +3.9% in Apr-19; marking the first contraction so far in 2019. The outlook for the region’s exports remains dismal as the persistence of US-China trade war continues to cloud the economic outlook.

 Imports: An across the board moderation

Imports eased to a 4-month low of USD 40.3 bn from USD 45.4 bn in the previous month. The moderation was driven by all three import categories of – 1) Gold (-USD 2.1 bn) 2) Oil (-USD 1.4 bn) and 3) Non-oil Non-gold (NoNG) imports (-USD 1.6 bn

Gold imports mean reverted to USD 2.7 bn after averaging at USD 4.4 bn over Apr and May-19. The surge in the previous two months was owing to temporary uptick in retail demand amidst Hindu festival of Akshay Tritya and the wedding season

Oil imports, in line with expectationscame in at USD 11.0 bn compared to USD 12.4 bn a month ago, reacting to a strong moderation in oil prices in the month of June. Recall, India Crude Basket had eased by a cumulative of 11.2% MoM last month, building on the marginal moderation of 1.4% in May-19 (in USD terms). The downward trend registered since late May was dominated by concerns about weakening global economic and oil demand growth amid disappointing global economic data and escalating trade disputes between the US and China

Outlook

The impact of trade tensions continue to have a rippling effect on rest of the world, with real growth indicators turning worrisome now. China’s GDP growth for the same quarter eased to the lowest level in three decades, to 6.2% compared to 6.4% in Q1. The spillover of trade moderation onto growth is becoming more tangible now.

For India, on the import front, the – 1) slowdown in domestic consumption and in turn its impact on import demand 2) Global crude oil prices expected to remain ranged and 3) the recently announced hike in custom duties in the Union Budget FY20, augurs well to keep a lid on incoming shipments this year.

Even in the recently announced Union Budget, we saw minimal proposals from the Government being directed to support exports (with the exception of reduction in export duty on select leather items and sports goods). With countries like the US having challenged our export subsidy programs at the WTO, the Government will have to consider phasing out the flagship Merchandise Exports from India Scheme (MEIS), possibly over the next 2-3 years. 


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