InvestorQ : Why has EXIM Bank warned about lower exports in the second quarter?
vaishnavi mhatre made post

Why has EXIM Bank warned about lower exports in the second quarter?

vidhya Laxmi answered.
3 weeks ago

The nodal trade bank, EXIM Bank, has released a note saying that India’s merchandise exports in the second quarter ending September 2022 could most likely slow down to about $114.4 bn. This would be sharply lower than the $119 billion of total exports witnessed by the Indian economy in the first quarter ended June 2022. According to EXIM Bank, this slowdown in the export figure has bene largely an outcome of fears of global demand slowdown due to excess hawkishness by the central bank.

One can best understand the trend in merchandise exports by looking at the yoy figure. For instance, the total exports is likely to slow down to 11.4% in the second quarter ending September 2022. This is much lower than the 25% yoy growth that the Indian economy witnessed in merchandise exports in the first quarter ended June 2022. There are several reasons for this performance. However, the biggest reason is that global headwinds like hawkishness and recession fears are urging traders to go slow. That is shrinking exports.

There is more to worry about, according to EXIM Bank. Some of the key factors that would trigger the slowdown in exports of merchandise goods in the second quarter of FY23 including some overbearing factors like the softening of global commodity prices and the potential slowdown in the economies of India’s major trade partners like the US, Middle East, Europe and China. EXIM Bank has also cautioned that basic supply chain constraints like availability of containers is yet to be resolved satisfactorily.

The pressure is already visible if one looks at the early trends in data for August 2022 coming from the Ministry of Commerce. The outbound export shipments from India grew at the slowest pace in nine months to just $33 billion in August 2022. This is surprisingly 1% lower on a yoy basis. In the September 2022 quarter, the non-oil exports are likely to show growth of 5.4% on a yoy basis. However, as EXIM Bank has pointed out, the pressure on the export performance is likely to stay for some time to come.

EXIM Bank uses a fairly sophisticated metrics which is globally accepted methodology. The methodology to project exports is called the Export Leading Index (ELI). This forecasts the movement of exports based on a matrix of several lead indicators which have been identified based on empirical research. It is one of the most accurate gauges of trade and tends to give a fairly reflective picture of the exports in the coming quarters. As per EXIM Bank, that picture is not too encouraging.