Rising crude may stretch CAD to 2.5% of GDP in FY19: SBI Ecowrap
Every $10 per barrel rise in oil price results in additional import bill of $8 billion, which will slash GDP by 16bps, increase fiscal deficit by 8bps, CAD by 27bps and inflation by 30bps, notes SBI Ecowrap
New Delhi: Rising crude oil prices may worsen the current account deficit (CAD) to 2.5% of the GDP in the current financial year, says a report by SBI Ecowrap.
The CAD—difference between inflow and outflow of foreign exchange—is estimated at 1.9% for 2017-18. According to SBI Ecowrap, every $10/barrel increase in oil price results in additional import bill of $8 billion. This in turn will decrease GDP by 16bps, increase fiscal deficit by 8bps, CAD by 27bps and inflation by 30bps, the research report said adding these are just model estimates and actuals could be much different.
“...crude prices are expected to impact imports. This will stretch the 2018-19 CAD to 2.5% of GDP. The exports need further push so that the external metrics remain stable,” the report said.
The report further said that, for 2017-18, the exports grew at 9.78%. With April 2018 exports exhibiting only 5.17% growth, it appears that the outbound shipments have still not overcome the goods and service tax (GST) implementation issues, it noted.
Crude price rise by $17 in the span of a year has been reflected in the imports, showing a growth of 19.59%. “Crude prices are expected to rise further this year and we expect imports to grow by at least 14%,” the report said and added that worsening of the trade deficit can impact the rupee further.
Foreign investment inflows have also not been benevolent this year. Between April-May 2018, outflows to the tune of $5 billion have happened. The twin impact of investment outflows and worsening trade balance can hit rupee further. So, the exports (both services and merchandise) need further push to keep the external metrics stable.
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