Current account deficit to hit 2.8% of GDP in FY19: SBI

• The country’s current account deficit (CAD) is likely to touch 2.8 percent of GDP in the current financial year on the surge in crude oil prices and moderate growth in exports.

• The merchandise trade imbalance is also expected to rise to USD 188 billion in FY19, compared with USD 160 billion in FY18, according to Ecowrap, an SBI research report.

• Against the backdrop of rising oil price and lukewarm export growth, the current account deficit is expected to reach 2.8 percent of GDP (USD 75 billion) in FY19.

• The trade deficit jumped to USD 18 billion in July 2018 on account of lukewarm export performance amidst a higher import bill.

• Oil imports registered an annual growth of 57.4 percent to USD 12.4 billion, from USD 7.8 billion in July 2017, and the report attributed the rise in the import bill to increase in oil price and rise in the quantity of oil imported. Had the oil price remained the same as in 2017, crude oil import bill would have been 31.7 percent lower in the first quarter of FY19.

• Amidst the recent devaluation of the Chinese Yuan, the country’s imports from China increased in May and June this year, after witnessing a decline in April. The trend of the manufacturing goods imports remains the same and within manufacturing, imports of electronic goods have declined on annual basis so far, this fiscal year.

• The huge increase in trade deficit is more linked to the average export performance so far in FY19.

• The CAD is still expected to be majorly financial by non-debt creating (FDI and FPI) capital inflows, according to the report, which constitutes around 44 percent of the total capital flows.

• The debt-creating inflows which increase in the last fiscal year are expected to remain on the higher side this year as well, which will imply pressure on rupee in case there is a sudden reversal of capital flows.

• The financial account surplus is expected to come around USD 59 billion, lower than the previous fiscal (USD 91.4 billion) due to foreign portfolio outflows which have already amounted to USD 9.3 billion till June 2018.

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