A Trade Data Face off? Prices Spike and Volume Wanes

21 April 2022

India’s current account deficit rose to 13-quarter high of 2.7% of GDP in 3QFY22 led by goods trade deficit, which rose to 7.2% of GDP in 3Q (vs. 5.9% in 2Q). While prices remained elevated for most of FY22, volume growth contributed significantly to nominal trade growth. Merchandise exports crossed the USD400bn mark for the first time as India registered a 42% export growth in FY22. Imports also grew by 55% to USD 607bn.What is driving elevated trade data – Volume or Price?

Key Points Appended Below:

• 1. Export Volume: Data on export volume reflects weakening growth momentum. Volume growth of non-petroleum exports fell to 7.6%YY in Feb-22 (3m moving average) from recent peak of 9.4%YY in Nov-21. The recent trend of falling export volume growth may intensify as global demand comes under pressure. Our global Economists’ have reduced our 2022 global growth forecast by -0.6pp to 3.3% and our 2023 forecast by -0.1pp to 3.1%. Nominal export growth is likely to remain healthy in FY23 due to higher prices.



• 2. Import Volume: Non-oil non-gold import volume growth has fallen to -2.7%YY in Feb-22 (3m moving average) from 8.2% in Nov-21. Gold and oil import volume growth are in negative territory over last three months on average. Rising import prices have been the prime driver of nominal import bill. Citi analysts believe that the Import volumes trends indicate an end of pent up demand led growth.
• 3. Commodity Price Pressure: The commodity pressure has widened over the last two months beyond oil and gold. Citi analysts have identified three products categories where price pressure could add significant upside to the non-oil non-gold import bill #1 Edible oil import bill in FY23 could be USD 5-7bn higher than last year. #2 Coal -Taking both rising prices and demand sensitivity in to account, FY23 coal import bill could be ~USD 8-11bn higher than FY22. #3 Fertilizer import bill in FY23 could be ~USD 5-7bn higher YoY.



• 4. BoP Forecast: Citi analysts expect FY23 current account deficit at 2.8% of GDP (vs 2.5% earlier) and BoP deficit of USD18bn in FY23 (vs USD 7bn earlier). Current account deficit could fall sharply from USD 62bn in 1HFY23 to USD 37bn in 2H.

For more updates please visit Citi Wealth Insights