Crude oil may derail economy–Deccan Chronicle–27.05.2018

India’s macro-economic indicators are expected to take a hit this year, with crude oil expected to remain elevated at $75 a barrel.

“A rise in crude oil prices would tend to increase total imports, resulting in a dampening impact on growth. However, there is only a marginal downward revision, as the growth is expected to be supported by twin engines of consumption and gradual recovery in capex cycle in FY19,” a report by Yes Bank said.

Crude oil prices have remained high in the recent past due to production cuts by Opec and a gradual recovery in the global economic growth.

Though the resumption of shale oil production could soften the impact of the Opec supply cut, the shale oil production too has remained slow to pick up pace.

Due to this India is now expected to grow by 7.3 per cent in 2018-19 against earlier forecast of 7.5 per cent, it said. Apart from the slowdown in the economic growth, Yes Bank said it expects net FPI inflows to slowdown from $21 billion in FY18 to zero in FY19, due to investors concerns on risks facing fiscal.

“Indeed, in the current fiscal year net FPI outflows of $6.4 billion have been seen till May,” said the bank.

Yes Bank revised its FY19 current account deficit (CAD) to 2.6 per cent of GDP, reflecting a stronger pick-up in trade deficit, which is partly balanced by stronger performance in services exports and a rise in remittances.

“India is a net importer of crude oil, accounting for 45 per cent share in net merchandise imports. We estimate that an increase of $10 per barrel in crude oil prices would result in petroleum trade deficit rising by $14 billion,” it said.

However, it said that some of the upside risk to CAD could be moderated by higher remittance inflows, which tend to pick-up when oil prices rise.

“As per our estimates, a $10 per barrel rise in crude oil prices would result in around 12 per cent rise in remittances. Crude oil is also likely to push up the retail inflation. We marginally revise up our FY19 CPI inflation estimate to 4.9 per cent (from 4.7 per cent previously), reflecting a stronger rise in fuel inflation,” it said.

Fuel accounts for 9.2 per cent weight in the CPI index and the rise in crude oil prices (along with impact of rupee depreciation) have been partially passed on to consumers.

via Crude oil may derail economy

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