The median forecast of 14 economists pegged the current deficit at 2% of GDP in FY24, helped by softening global commodity prices and strengthening of services exports. The current account deficit for FY23 is expected at 2.5% of GDP, over double the 1.2% of GDP in the preceding year.
“We see CAD easing from here on, led by incrementally improving trade deficit amid receding commodity prices, especially for oil,” said Madhavi Arora, lead economist, Emkay Global. “The solid services trade surplus will continue to strongly offset CAD, which will now likely amount to $85 billion in 2023-24.”
The forecasts in the poll ranged from 1.6% to 2.9% for FY24 and 2.1-3.3% for the current fiscal. “In 2023-24, while exports are likely to falter, imports will also weaken, and that will help narrow the trade deficit. The strong momentum in services sector export and remittances is likely to continue next fiscal year,” said Rajani Sinha, chief economist at CareEdge.
Sinha expects CAD to narrow to 1.6% of GDP in the coming fiscal.
The merchandise trade deficit eased in the past couple of months due to falling commodity prices after remaining elevated for the most of FY23.
Rahul Bajoria, MD & head of EM Asia (ex-China) economics, Barclays, said CAD might narrow further if oil prices remain at current levels. “We see risks tilted towards a smaller CAD in FY23-24, as our baseline oil assumption is at $85 per barrel,” he said.Services boost
Services have provided a cushion to the trade balance in the last year.
The $132.94 billion services trade surplus for April-February FY23 had helped keep the overall trade deficit contained despite a 43% jump in the merchandise trade deficit to $247.5 billion during April-February FY23 from $172.5 billion in the previous year.
“The narrowing of the current account may not matter in the immediate term, especially with so much global financial market uncertainty. But over the medium term, it does bode well,” said Dhiraj Nim, FX strategist and economist, ANZ.