CAD, quantity indices, industrial turnover: will the MTP hold?

►Med um-term programs (MTP) usually become obsolete r ght after they are d sclosed. Th s t me around, econom sts at least get a consensus, wh ch concurs w th the MTP on fore gn trade and current account def c ts (CADs). The CAD s expected to hover around 4.5% n 2017 and 2018, w th 4.6% the h ghest est mate, for 2017. Econom sts bel eve t w ll then gradually shr nk, but the MTP s more opt m st c and d verges from market consensus. In later years, the MTP sees a southbound path that h ts 3.9% of GDP n 2020, w th econom sts far less sangu ne about export prospects. Anyway, a 4-4.5% CAD-to-GDP rat o s rather stable, and not near peak def c ts of past years when o l pr ces reached new he ghts. What does the f nance account tell us?

►In August, the CAD was at the lowest level of the year, w th $36.9 b ll on over the last year. In 8M 2017, the CAD was $27.2 b ll on. The net errors & om ss ons tem stood at $1.61 b ll on n August, but n 8M t fell by $1.58 b ll on. Hence, t doesn’t look to be a major source of f nanc ng th s year. Banks and the general government are net payers: they have pa d $192 and $117 m ll on respect vely, whereas corporates were net borrowers w th $1.08 b ll on. Rollover rat os have been decl n ng. Portfol o nvestments cont nued w th $2.237 b ll on nflows. Off c al reserves went up by $3.4 b ll on. Not a bad f nanc ng p cture, but banks are now net payers. That may also cont nue n 2018 f demand for loans falters and FX fund ng costs r se as expected.

The calendar and seasonally adjusted export volume ndex ncreased by 5.5% whereas the adjusted mport ndex decl ned by 3.7% MoM. The calendar adjusted nd ces year-on-year both posted ncreases: 12.7% for exports and 8.6% for mports. The terms of trade, however, though st ll h gher than 100, are deter orat ng, wh ch makes the contr but on of fore gn demand to GDP growth quest onable n terms of susta nab l ty. The 6.4% decl ne n a year when net exports contr bute s gn f cantly to GDP sa b t strange. The terms of trade ndex read as 113.1 n August 2016, but stood at 106.7 n August 2017.

Calendar-adjusted annual changes n the ndustr al turnover ndex are good w th a 26.6% ncrease n each of the total ndex and manufactur ng ndex. The August data, however, s not espec ally strong, w th a 0.8% ncrease n month-on-month (MoM) seasonally and calendar adjusted.