Exporters seek fewer loans on signs of slowing global trade – The Economic Times*

Clipped from: https://economictimes.indiatimes.com/news/economy/foreign-trade/exporters-seek-fewer-loans-on-signs-of-slowing-global-trade/articleshow/96180875.cms

Synopsis

Exports contracted in October after a gap of 19 months. Merchandise exports slipped below the level of $30 billion for the first time in the last 20 months. This marked a contraction of 16% on a sequential basis and a hefty 17% on an annualised basis.

The impact of slowing global trade is beginning to show on credit demand from Indian exporters, with export credit by banks shrinking nearly a quarter year-on-year at the end of October, pointing to a further likely slowdown in overseas merchandise shipments.

Exports contracted in October after a gap of 19 months. Merchandise exports slipped below the level of $30 billion for the first time in the last 20 months. This marked a contraction of 16% on a sequential basis and a hefty 17% on an annualised basis.

“Headwinds are clearly visible in the global trade accentuated by geopolitical tensions, rising inflation, impending recession and currency volatility,” said Yogesh Gupta, eastern region chairman of the Federation of Indian Export Organisations (FIEO).

He, however, attributed the contraction largely to the long holidays in October, expecting a rise in November.

Data released by the Reserve Bank of India (RBI) showed that export credit from banks has seen a 25.1% dip to ₹16,909 crore at the end of October 21, 2022, compared with what it was a year ago. This is in sharp contrast to a robust 18% overall bank credit growth.

“The lack of liquidity is a big challenge for exporters. Bank insistence on collateral is depriving many MSMEs of credit. The share of exports credit in the total net banking credit is constantly moving downward,” Gupta said.

Worse, the weak global economic outlook would weigh heavily on Indian exporters more than anything else, economists said.

“Indian exports tend to be affected more by the state of the global economy than advantages in currency valuation. Hence, with the slowdown in the world economy commencing, it will be hard to foster growth in exports considering that USA and EU are two major markets (for Indian exporters) besides China,” Bank of Baroda chief economist Madan Sabnavis told ET.

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The US and Europe together account for about 34% share of India’s export baskets.

“In addition, significant drag is also seen in case of contraction in export demand (during April-September FY23 over the year-ago period) from other key export destinations such as China, Russia, Hong Kong, and Japan,” said Yuvika Singhal, an economist with QuantEco Research.

Gupta said that while the space vacated by China is an opportunity, Indian exporters need to bring their acts together to seize it. “The opportunities may go away as soon as China bounces back from its zero-covid policies. All stakeholders need to understand this,” Gupta said.

He expects demand for Indian goods to rise in February-March 2023 if oil and gas prices do not throw upward surprises. Economists are not so optimistic.

“A rebound (in exports) is likely only in 2024 as 2023 will be even less satisfactory than 2022 given that the recession will reach its nadir in 2023. With global commodity prices now coming down the value of exports will tend to get depressed further,” Sabnavis said.

The International Monetary Fund slashed 2023 world GDP and world trade forecasts by 20 bps and 70 bps to 2.7% and 2.5% respectively.

“In such an environment of slowing growth, a strong rebound in exports looks difficult, especially with commodity prices on a weaker footing,” Singhal said. “Having said so, tailwinds to exports could come from the lagged impact of rupee depreciation along with traction in the Production Linked Incentive Schemes in some of the export-oriented sectors catering to demand from India’s non-traditional trade partners, such as Asean, LatAm and African regions along with some tangible impact of recently inked trade pacts (with Australia, UAE) bearing fruition,” she said.

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