March trade data not yet fully reflecting impact of war in Ukraine: Nomura

March trade data does not yet reflect full impact of war in Ukraine, Nomura says

India’s trade deficit increased by 88% in the 2021-22 financial year, but this data does not yet reflect the full impact of the Russian-Ukrainian war, analysts at Nomura noted.

“March trade data does not yet reflect the full impact of the Russian-Ukrainian war. The full impact on trade will be visible in the second quarter (current quarter), reflecting higher commodity prices, chains of frayed supply and national standardization,” the Nomura analysts wrote. in a research report.

“The Russian-Ukrainian war had only a limited impact on the external sector in March. The trade deficit moderated, despite higher oil prices, due to stable export performance and a sharp drop in gold imports,” the report said.

The trade deficit reached $192.41 billion in 2021-22 from $102.63 billion the previous year, rising 87.5%, government data showed on Monday.

While total exports in the last fiscal year hit a record high of $417.81 billion, imports also soared to $610.22 billion, leaving a trade deficit of $192.41 billion.

We expect the full impact on trade to be evident in the second quarter (current quarter), reflecting higher oil and broader commodity prices, frayed supply chains and the normalization of the national economy. We expect the current account deficit to widen to 3.8% of GDP in FY23 (year ending March 2023) compared to our expectation of around 1.6% of GDP in during FY22, adding external risks to pre-existing inflation and fiscal risks,” the analysts said.

India’s external account – both the current account and the balance of payments (BoP) – deteriorated in the December quarter due to a surge in crude oil prices and a record drawdown foreign institutional investors.

Indeed, the current account deficit (CAD) soared to $23 billion or 2.7% of gross domestic product (GDP) in the quarter ending December 2021, from $9.9 billion or 1.3 percent of GDP in the previous quarter, according to data released by the Reserve Bank of India (RBI) on Thursday.

This data was for a period before the escalation of the Russian-Ukrainian war, which pushed oil prices to decades highs, with Brent rising above $100 a barrel since Russia invaded Ukraine on February 24. .

“March trade data was the first month to reflect headwinds from the Russian-Ukrainian war and soaring commodity prices, although the full extent of the impact will only materialize in the coming months. “, reads the note.

“Looking ahead, we expect the trade deficit to remain high. Typically, a 10% rise in global crude oil prices widens India’s current account deficit by 0.3% of GDP. wider commodity prices, including fertilizers, natural gas, coal, metals, edible oils, is also likely to negatively impact imports,” Nomura analysts added.