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World Economy

22

OPEC Monthly Oil Market Report – August 2017

The Indian

trade

gap widened 59.7% y-o-y to $12.96 bn in June of 2017, slightly higher than market

expectations of a $12.52 bn deficit. Exports increased 4.39% to $23.56 bn, the least since January.

However, as export performance is irregular, the trade deficit is under some pressure. Import growth has

started to moderate as a surge in oil and gold imports diminishes. But ‘core’ imports appear to be rising at a

healthy pace which is a positive signal about the state of domestic demand. Imports to India rose 19% y-o-y

to $36.52 bn in June of 2017, the smallest gain since January. Purchases increased mainly for petroleum,

crude and products; electronic goods; pearls, precious and semiprecious stones; machinery, electrical and

non-electrical and gold. In terms of trade, the Commerce Ministry of India is negotiating as many as 21 trade

agreements. India is negotiating free trade areas (FTAs) with the European Union, as well as with Sri Lanka,

Thailand, New Zealand and Canada. Imports from China stood at $1.96 bn, which is 44.1%. One of the

reasons behind this is related to the price competitiveness of these products in China.

Graph 3 - 19: Contributions to Indian GDP growth

The Indian

PMI

survey data indicated that the introduction of GST weighed heavily on the Indian

manufacturing industry in July. New orders and output decreased for the first time since the demonetisation

related downturn recorded in December last year, with rates of contraction the steepest since February 2009

in both cases. Consequently, companies purchased fewer quantities of inputs for use in the production

process, leading to an overall decline in holdings of raw materials and semi-finished items. Cost burdens

increased further, but factory gate charges were lowered as firms attempted to win new business. The PMI

was at 47.9 in July, down from 50.9 in June, which was its lowest mark since February 2009. It highlighted

the first deterioration in business conditions in 2017 so far. The downturn was widespread across the three

broad areas of manufacturing, with intermediate goods producers the worst affected. Incoming new work

dropped for the first time in the year-to-date and at the steepest pace since early 2009.

Subjective evidence indicated that the GST creates disadvantages for demand. Different to the trend for total

order books, new export orders continued to rise in July. That said, the rate of expansion softened from

June’s eight-month high. The weakening trend for demand, relatively muted cost inflationary pressures and

discounted factory gate charges provide powerful tools for monetary policy easing, which has the potential to

revive economic growth. Upcoming PMI releases will show whether underlying conditions remain on the

downside or if July’s contraction was a temporary blip. Goods producers foresee the latter, with panellists

widely commenting that a lack of clarity regarding tax rates caused confusion among suppliers and

manufacturers themselves when agreeing on prices. As such, businesses expect GST information to

become clearer in coming months.

-10

-5

0

5

10

15

20

25

30

35

1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17

% change y-o-y

Private consumption

Public consumption

GFCF

Exports

Imports

Sources: Central Statistics Office and Haver Analytics.