Citi trims India's current account gap forecast to 2.9% of GDP

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The shortfall in the current account, the broadest measure of trade in goods and services, will probably be at 2.9% of gross domestic product, according to Citi’s India economist Samiran Chakraborty. That is smaller than the 3.3% seen previously, and a full percentage point lower than the 3.9% predicted in August.

“Key surprise came from the phenomenal growth in services exports in April-September, which goes beyond just software services,” he wrote in a report Wednesday.

While India’s goods exports have turned weak, declining an average 1.5% in the five months to November, services exports have notched up gains averaging nearly 30% during the period, data compiled by Bloomberg show.

The reassessment is also driven by the changing oil price dynamics, Chakraborty wrote. Oil prices have fallen sharply over the last two months and are likely to remain subdued over the next year amid recession fears, he said. Citi expects oil at less than $80 a barrel in the next financial year.

India’s current account deficit widened to 4.4% of GDP in the July-September quarter as trade imbalances increased and foreigners liquidated their investments in India. However, “the peak external sector concerns are behind us,” Chakraborty said while pencilling in a deficit below 2.5% of GDP in the next fiscal year starting April.