India: Current account deficit widens in Q4 – Nomura

India’s current account deficit widened to 2% of GDP (USD13.5bn) in Q4 2017 from 1.1% (USD7.2bn) in Q3, better than expected (Consensus: -USD15.3; Nomura: - USD17.8), notes the research team at Nomura.

Key Quotes

“The deterioration reflected a much wider trade deficit as higher commodity prices and a domestic recovery resulted in imports outpacing exports. However, the deterioration in the current account was less than expected as the invisibles surplus surprised positively, rising a strong 21% y-o-y in Q4 versus 15.4% in Q3, led by higher services exports and increased private remittances, both reflecting the impact of the synchronised global recovery.”

“Net capital inflows also rose to USD22.1bn in Q4 versus USD16.4bn in Q3, but net FDI inflows slowed sharply to USD4.3bn versus USD12.4bn. The balance of payments surplus remained steady at USD9.4bn in Q4, as capital inflows more than financed the wider current account deficit, but the basic balance of payments surplus (current account + net FDI) turned negative (-USD9.2bn versus a surplus of USD7.4bn in Q3).”

“In 2017, the overall current account deficit widened to 1.5% of GDP from a deficit of 0.6% in 2016 and we expect a further deterioration to 2% of GDP in 2018, reflecting higher oil prices and a strong cyclical recovery. Although funding should not be an issue, the basic balance of payments will be negative, making funding susceptible to global risk sentiment.”