EXIM Bank projects lower export growth in Q2

resr 5paisa Research Team 10th December 2022 - 02:51 pm
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The all-important merchandise trade data will be announced later this week, but the preliminary data for August 2022 has already been put out by the Ministry of Commerce. The merchandise trade deficit at $28.6 billion is better than in July, but still threatens to take the current account deficit for FY23 closer to 5% of GDP. However, the one trend seen in the trade data in the last few months is that the imports are either static or rising. On the other hand, the merchandise exports have been up against global headwinds of recession.

Now there is almost an official confirmation of such pressure from none other than the Export Import Bank (EXIM Bank). According to a note by EXIM Bank, India’s merchandise exports in the second quarter ending September 2022 is expected to slow down to just about $114.4 bn. This would be lower than the $119 billion of total exports witnessed in the first quarter ended June 2022. This slowdown in exports, according to EXIM Bank has been largely triggered by fears of global demand slowdown, anticipating a rate driven recession.

The proof of robustness in exports is best seen in the yoy growth and that is where the exports are expected to falter, according to EXIM Bank. According to the nodal trade funding bank, the yoy growth in merchandise exports is likely to slow down to 11.4% in the second quarter ending September 2022. This is sharply lower than the 25% yoy growth witnessed by merchandise exports in the first quarter ended June 2022. Clearly, the global headwinds like hawkishness and recession fears are urging traders to go slow.

According to the EXIM Bank, the key factors that would trigger the slowdown in exports of goods in the second quarter of FY23 will be the softening global commodity prices and the potential slowdown in the economies of India’s major trade partners; including the US, Middle East, Europe and China. In addition, the inflationary pressures and tight monetary policies around the world are likely to have a cascading effect. EXIM Bank has also warned that some basic supply chain constraints like availability of containers is yet to be solved.

One only needs to look at the trade data for August 2022 (preliminary data released by Ministry of Commerce), to get an idea. The outbound shipments from India grew at the slowest pace in nine months at just $33 billion in August, falling 1% on a yoy basis. The boost would perhaps come from the non-oil exports, which are projected at $91.7 bn during the second quarter ending September 2022. These non-oil exports are likely to show growth of 5.4% on a yoy basis, compared to the similar quarter of the previous fiscal year. 

This was part of the quarterly forecast of India’s total merchandise exports (non-oil) which are released by the EXIM Bank on a period basis. The ideas here is to give an idea of how the merchandise exports are likely to pan out in the coming quarter. EXIM Bank uses the globally accepted methodology that is popular called the Export Leading Index (ELI). This forecasts the movement of exports based on a matrix of lead indicators which have been identified based on the empirical research. It is one of the most accurate gauges of trade.

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