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MOSL: ECOSCOPE-CAD expands to 2% of GDP in 3QFY18-Implied domestic savings at a 15-year low

ECOSCOPE: CAD expands to 2% of GDP in 3QFY18; Implied domestic savings at a 15-year low

 

• India’s current account deficit (CAD) rose to USD13.5b (or 2% of GDP) in 3QFY18 from USD8b (1.4% of GDP) in the year-ago period. Nevertheless, the number is lower than our/consensus estimate of USD14.9b/USD15.9b. A surge in the merchandise trade deficit led to the increase in CAD in the quarter.
• Capital flows remained healthy at USD22.1b (3.4% of GDP) in 3QFY18, in line with the levels seen during the last two quarters. They were more than sufficient to fund the CAD, leading to a USD9.4b accretion to reserves.
• Total domestic savings (implied from the difference between investments and the CAD) declined to 28% of GDP in 3QFY18 from 28.7% in 3QFY17. This was the lowest level of savings on a quarterly basis in 15 years.
• CAD widened to 1.9% of GDP in 9MFY18 from 0.7% in the year-ago period. We expect the CAD to remain elevated at 1.4% in 4QFY18 vis-à-vis 0.6% in 4QFY17. For the full-year FY18, we expect the CAD to come in at 1.8% of GDP, up from 0.7% of GDP in FY17. Nevertheless, it will remain at comfortable levels.