The trade balance posted a deficit of USD 0.9 billion in July, above our forecast of a deficit of USD 3.4 billion and market consensus (as per Bloomberg) of a deficit of USD 1.8 billion. The 12-month rolling trade balance narrowed to a deficit of USD 15.1 billion in July (from a deficit of USD 20.4 billion in June), supported by a lower energy trade deficit of USD 28.5 billion (from a deficit of USD 31.6 billion) and a larger non-energy trade surplus of USD 13.4 billion (from a surplus of 11.1 billion). At the margin, using three-month annualized seasonally adjusted figures, the trade balance stood at a deficit of USD 3.7 billion in July (from a deficit of USD 19.0 billion in 2Q23). Looking at the breakdown, manufacturing exports grew 2.4% mom/sa in July with an improving momentum (qoq/saar of 15.7% in July, from a 0.0% in 2Q23). Non-energy imports fell by 2.5% mom/sa, with sequential contractions across all categories (non-energy consumption, intermediate and capital imports). However, non-energy imports momentum remained positive with the qoq/saar in July at 10.1% (from 16.7% in 2Q23).
Our view: Our trade balance forecast stands at a deficit of USD 23 billion for 2023 (from a trade deficit of USD 26.9 billion in 2022). Manufacturing exports growth will likely be curbed by an expected deceleration of the U.S. economy in 2H23, which should be mitigated by slower growth of non-energy imports as internal demand softens. A strong currency is also likely to contribute to the trade deficit.