October trade deficit may widen to $10.8 billion

Dhanteras-induced demand for gold and rise in Brent crude oil prices may have widened India’s trade deficit in October, according to a poll.

“We expect trade deficit to widen to approximately $10.8 billion in October from $9 billion earlier, led by seasonal factors (dhanteras-induced gold import) along with a stronger sequential decline in exports growth as compared with that in imports growth,” said Derrick Y Kam, economist at Morgan Stanley.

“Exports growth should have moderated to 13.3 per cent year-on-year in October from 25.7 per cent, driven in part by the base effect, although it would still be posting double-digit growth for a third straight month,” Y Kam added.

The export-import data is expected to be announced by the government on Wednesday.

The median of estimates of nine economists polled by TickerNews showed India’s trade deficit might have widened to $10.5 billion in October compared with $8.98 billion deficit in September.

Trade deficit is an economic measure of international trade in which a country’s imports exceeds its exports. It also represents an outflow of domestic currency to foreign markets.

Similarly, Aditi Nayar, principal economist at Icra, an Indian arm of the rating agency Moody’s, also believes seasonal factors due to Diwali and surge in oil prices may have led to widening of trade deficit last month.

India’s gold demand during the October-December quarter is expected to rise to 250 tonnes compared with 244 tonnes in the same period a year ago, according to World Gold Council (WGC).

For the calendar year 2017, the council expects India’s gold demand to rise to 704-710 tonnes compared with 675.5 tonnes in the same period a year go.

“The wedding season along with harvesting period in rural India tempted us to raise our demand forecast of the fourth quarter,” said Somasundaram PR, managing director, India, WGC.

Adding to this, economists believe that India’s exports growth may have moderated to 13.3 per cent on year in October from 25.7 per cent earlier, driven in part by the base effect, although it would still be posting double-digit growth for a third straight month.

The deceleration in exports is similar to that seen elsewhere in the region, with South Korea posting a moderation in underlying exports momentum for October.

Meanwhile, on import side too economists see moderation to 8.1 per cent in October, driven in part by unfavourable base effect of 11.3 percentage point versus 18.1 per cent rise in September.

Oil consumption is likely to slip further affecting oil imports despite higher prices, while gold imports may remained supported at about 56 tonnes given the festivities in the month.

India, world’s third largest consumer of crude oil, imports 82 per cent of its requirements and net oil imports stood at $56 billion, 2.5 per cent of the gross domestic product (GDP), as of 2017.

TickerNews Service