Goldman Sachs sees current account deficit falling to 1% of GDP this fiscal

Mumbai, January 2

Stating that the country’s external balances are stronger than expected on the back of strong inflows, a Wall Street brokerage on Tuesday projected a much lower current account deficit (CAD) which is likely to print at 1 per cent for this fiscal, leaving the balance of payment surplus at USD 39 billion.

Goldman Sachs, in a report, said the country’s external balances remained favourable with a combination of low CAD, strong capital flows, adequate forex reserves and low external debt. Combined with this, expectations for a weaker dollar due to the likely five US Fed rate cuts this year suggest a “goldilocks” environment for the country’s external balances.

Accordingly, the Wall Street major has revised upwards its CAD forecast to 1 per cent of GDP for FY24 from 1.3 per cent earlier, and 1.3 per cent for FY25 from 1.9 per cent earlier, citing a downward revision to their oil price forecast to USD 81/barrel in 2024 from above USD 90 earlier; and services exports continuing to surprise higher than prior expectations.

The brokerage expects robust capital flows in 2024, driven by strong equity portfolio flows as the Fed starts the easing cycle; robust debt inflows as the bonds are included in the JP Morgan’s global government bond index from June 2024; and higher FDI inflows with the country continuing to benefit from regional supply chain diversification. These capital inflows should help offset lower net corporate dollar borrowing inflows owing to sizable maturities of earlier loans coming up in 2024, it said. — PTI

External balances remain favourable

In a report, Goldman Sachs said India’s external balances remained favourable with a combination of low current account deficit, strong capital flows, adequate forex reserves and low external debt.