After October trade data, Nomura says CY23 GDP growth to fall 250 bps to 4.7%

Global headwinds start to weigh on India's growth story. (Photo by Reynaldo #brigworkz Brigantty/Pexels)

Brokerage house Nomura expects India’s GDP to grow at 4.7 percent in 2023, a drop of 250 bps from this year’s growth rate, taking into account the October trade data that saw exports contract after nearly two years and imports weaken.

According to Nomura’s economists, the external trade data and weak industrial output data indicate that the domestic growth momentum may have peaked in the second quarter of 2022.

“The consistent slowdown across months in exports, core imports and industrial production suggest that domestic growth momentum has peaked,” wrote economists Sonal Varma and Aurodeep Nandi in their November 15 report.

“India’s investment cycle is linked closely to export cycles and will also likely be low. We expect GDP growth to slow from 7.2 percent YoY (year on year) in 2022 to a below-consensus 4.7 percent in 2023.”

India’s export growth fell to -16.7 percent YoY in October from 4.8 percent in September, which Varma and Nandi pegged to a “precipitous decline in global demand, which may which may have been exacerbated by fewer working days this October due to Diwali”.

The economists expect export growth figures in November to improve because of more working days this year when compared to 2021.

Also read: Trade deficit widens to nearly $27 billion in October

In October, oil export growth fell to -11.4 percent YoY from 43 percent in September, which partly reflected lower global crude oil prices.

Non-oil exports plunged -16.9 percent YoY, with the decline in broad-based across iron ore, handicrafts, textiles, some agricultural goods, plastics, gems & jewellery, engineering goods, chemicals, pharmaceuticals and leather goods, the report said.

Also read: India's trade deficit with Russia rises a whopping 674 percent in H1

Import growth dropped by 3 ppt or 300 bps, which could indicate weakening demand. One basis point is one-hundredth of a percentage point.

Import growth also weakened to 5.7 percent YoY in October from 8.7 percent in September. Oil import growth rose (29.1 percent YoY from -5.4 percent in September), gold imports contracted (by 27 percent YoY from 24.6 percent in September), while core import growth eased to 4.6 percent YoY from 20.6 percent in September, the report said.

As a result, the merchandise trade deficit widened in October to $ 26.9 billion from $ 25.7 billion in September, it said.

The key laggards within core imports were electronic goods, coal, chemicals, vegetable oil, precious stones, while transport equipment, machinery, plastics, iron & steel and non-ferrous metal imports posted positive growth, the report said.

Weaker non-oil imports may offset the drop in exports and elevated oil prices, according to the report. Therefore, Nomura's economists expect a trade deficit of 3.3 percent of GDP in FY23 and 2.8 percent in FY24, with the balance of payments likely to remain in deficit.