India’s Quarterly Economic Outlook - Current Account Deficit Could Widen To 5.5% Of GDP In Q2: Motilal Oswal

Motilal Oswal Report

The continuation of hostilities between Russia and Ukraine has led to an entrenched episode of higher inflation across the globe. However, commodity prices have come off sharply from their peaks with renewed concerns on global growth, led by strong monetary tightening that is likely to continue at least until December 2022.

At this juncture, India seems isolated from the high inflation-slow growth challenges. Nevertheless, this isolation will fade over the next few months. We believe that growth concerns will emerge everywhere, including India, in CY23/FY24E, limiting rate hikes and reversing the current narrative. 

Although we have raised India’s FY23E real gross domestic product growth to 6.8%, we have kept our FY24 projection broadly unchanged at just 5.5%, much lower than the consensus of 6.3%. A serious global recession presents a downside risk to our below consensus growth forecast.

At the same time, we have cut our FY23 consumer price index inflation forecast to 6.7% (from 7.0% earlier), keeping FY24E unchanged at 5.2%.

India’s external situation has also worsened quickly. We expect current account deficit to widen to 3.7% of GDP in Q1 FY23 and peak at 5.5% of GDP in Q2 FY23, implying a decadal-high CAD at 3.8% of GDP in FY23.

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