External Account: Stagnant trade amid anemic growth

External Account: Stagnant trade amid anemic growth

Trade deficit clocks in at USD 1.7bn in Jul-13: Recently published PBS data shows trade deficit increased by 6.07% Y/Y in the month of Jul-13 as imports picked up 4.16% Y/Y to USD 3.81bn. Meanwhile, exports jumped by merely 2.65% to USD 2.09bn during Jul-13. Despite cotton prices being 10% higher, exports growth of merely 2.65% Y/Y speaks of anemic business growth on the back of structural issues relating to energy sector along with weak law and order situation. Although import growth remained subdued on weak demand, further increase in oil prices along with resolution in energy chain can result in swelling of import bill and trade deficit.

Export stagnation despite higher cotton prices: Textile sector constitutes ~50% of our total exports and despite cotton prices being up 10% Y/Y in Jul-13, total exports increased by merely 2.65% Y/Y. We think the stagnation is likely on account of power outages keeping production levels of textile sector on the lower side. Moreover, Ramadan effect may also have played a role in lower production.

Oil prices hold the key in import bill: Oil prices have been hovering between USD 100-110 per barrel for a while. With gradual return of Libya’s oil production as strikes and protests at oil terminals subside, oil prices may ease a bit which shall bode well for Pakistan’s import bill.

Outlook: With structural issues intact, even currency slippages will not help in rejuvenating exports growth.  We anticipate exports to remain depressed for now while imports will pick up as government focuses on igniting growth.