Current account deficit of Q3 may widen to 1.2%, improvement likely in March quarter

Mumbai: The current account deficit (CAD) is likely to widen to 1.2 per cent or $11 billion of the GDP in October-December FY24 as compared to 1 per cent in the previous quarter, India Ratings said in a report.

In the year-ago period, CAD was 2 per cent of the GDP.

A current account deficit occurs when a country's expenditure in imports is more than its income from exports of goods and services.

The report further said the CAD percentage may narrow in Q4 as it sees some nascent signs of a pick-up in global economic activity which will lead to better export numbers.

The global manufacturing purchasing managers index expanded for the first time in 17 months in February to 50.3. The expansion was stronger in the US and emerging economies, barring the European region, according to the report.

The agency expects merchandise exports to increase to around $117 billion in Q4, up 2 per cent on-year, which will be a seven-quarter high.

Likewise, merchandise imports are expected to touch a six-quarter high of around $180 billion in Q4, up 8 per cent on-year. Trade deficit will be $64 billion in the quarter.

On the other hand, services demand has remained healthy despite global headwinds and the trend continues to be strong with the latest high frequency indicators.

The global services PMI touched a seven-month high of 52.4 in February helped by both the developed as well as emerging markets. Thus, it hopes services trade surplus to sustain the record-breaking run and stand at a fresh high of $47 billion in Q4.

Merchandise exports grew 1.1 per cent on-year in Q3 and a favourable base effect and a pick-up in demand from the US, UAE and the Netherlands helped goods exports grow after a year. However, sequentially, goods exports were down to $105.7 billion in Q3 from $107.4 billion in Q2.

The top 10 items which pushed goods exports in Q3 were gold and other precious metal jewelleries, iron ore, drug formulations, biologicals, telecom instruments, aircraft, spacecraft & parts, cotton yarn, basmati rice, buffalo meat, electric machinery & equipment, and copper and related products.

Volume growth in these items ranged between a negative 38.3 per cent to 368.2 per cent and was weaker than the value growth which stood in the range of 10.2-535 per cent in Q3.

On the other hand, merchandise imports rose to a year's high of $176.2 billion in Q3 led by imports of intermediate and consumer durables which were at a record high of $40.23 billion and a five-quarter high of $39.58 billion, respectively.

However, goods imports were up by only 0.1 per cent in Q3 as primary goods contracted by 11.2 per cent.