CAB To Turn Into Deficit In Q1FY26 After A Surplus In Q4FY25
The escalation of the Israel-Iran conflict has led to uncertainties in the global economic environment. Iran’s threat of closure of Strait of Hormuz, which is responsible for shipping over 20 per cent of the world's oil supply, can see significant surge in oil prices.
Chennai: After a gap of three quarters, Current Account Balance had registered a surplus in Q4 FY25. However, the global uncertainties are likely to once again pull the CAB down into a deficit in Q1FY26.
The current account balance (CAB) is estimated to have registered a surplus of around $7 billion or 0.7 per cent of GDP in Q4 FY25 after a gap of three quarters. The global goods trade grew 4.5 per cent during 4QFY25, the sharpest pace of expansion in 10 quarters.
CAB is likely to turn into a deficit of around 1.2 per cent of GDP in Q1 FY26, finds India Ratings.
The escalation of the Israel-Iran conflict has led to uncertainties in the global economic environment. Iran’s threat of closure of Strait of Hormuz, which is responsible for shipping over 20 per cent of the world's oil supply, can see significant surge in oil prices. If such a situation were to materialise, then this could take India’s current account deficit to beyond 1.5 per cent of GDP in the later part of FY26, said Paras Jasrai, Economist & Associate Director, Ind-Ra.
However, the global trading order is up for a complete reset with the announcement of reciprocal tariffs by the US in early April 2025.
The goods trade is up for a stall in FY26 as indicated by WTO. The merchandise goods trade volume is expected to contract 0.2 per cent in 2025 from its baseline forecast of 2.7 per cent for 2025.
The global manufacturing Purchasing Managers’ Index (PMI) in May 2025 touched a five-month low of 49.6, with contraction led by the emerging markets. Ind-Ra expects the merchandise exports to decrease to around $113 billion in 1QFY26.
The merchandise imports, however, are expected to increase to around $189 billion in 1QFY26, due to pre-emptive buying in view of the tariff pause and geopolitical tensions. Overall, Ind-Ra expects the goods trade deficit to rise 22.4 per cent to around $76 billion in 1QFY26.
The spillover effects of the uncertainty would be felt on services exports. The WTO expects the global services trade volume to expand 4 per cent in 2025 compared to the baseline forecast of 5.1 per cent. The global trade in commercial services grew at a healthy 6.8 per cent in 2024. The global services PMI moderated to 52 in May 2025 from 53.8 in December 2024. Ind-Ra expects the services trade surplus to moderate to around $48 billion in 1QFY26.
