India Trade balance May 2019 Analysis - Lower oil prices to help CAD

Trade deficit steady at US$ 15.4bn

Though trade deficit remained steady in May’19, recent decline in oil prices and weak domestic demand implies imports will moderate. Exports too are unlikely to inch up. Current level of oil prices (US$ 61.5/bbl presently) is far lower than average of US$ 71/ bbl in FY19 and thus bodes well for outlook on trade deficit. Hence, CAD is likely to be lower at 2% of GDP in FY20 (2.3% of GDP in FY19). This along with FII inflows of US$ 5.2bn in FYTD20 is positive for INR. Further escalation of US-China trade war and volatility in crude prices are key risks in our understanding.

Imports decelerate marginally

India’s imports rose by 4.3% in May’19 compared with 4.5% in Apr’19. The slight deceleration was due to decline in precious stones (-25% in May’19) and electronic imports (-3% in May’19). Gold and oil imports also moderated to 37.4% and 8.2% in May’19 from 54% and 9.3% respectively in Apr’19. Non-oil-non-gold imports declined for the fourth straight month at (-) 1.3% in May’19. It seems consumption slowdown is likely to continue. Capital goods imports showed a mild uptick to 1.5% in May’19 compared with a decline of (-) 5.5% in Apr’19. 


Export growth ticks up
India’s export growth improved marginally to 3.9% in May’19 from 0.6% in Apr’19. Chemicals (20.6%), pharma (11%) and engineering goods (4.4%) rose the most. On the other hand, agriculture and textile exports declined for the second consecutive month in May’19. Oil exports too fell (-1.4%) as prices declined (-8.7%). In FYTD20, export growth remains muted at 2.4% compared with 12.9% in the same period in FY19. We expect export growth to remain subdued in the near-term on the back of muted global growth. 

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