India's merchandise exports growth slowed last month, though remained healthy enough to raise hopes a recovery in western markets will help support a rebound in the South Asian economy.

July exports rose 7.33% from a year earlier to $27.72 billion, after growing more than 10% for two months in a row till June, trade ministry data released Thursday showed. Imports rose 4.25% to $39.95 billion, slower than June's 8.3% increase. The trade deficit widened to $12.22 billion from $11.76 billion in June.

M Rafeeque Ahmed, President of the Federation of Indian Export Organisations, said the single-digit growth in exports was below expectation. But India still can achieve its exports target of $350 billion this fiscal year as manufacturing activity is expectedto pick up. Conditions in western economies are improving, which should also help support demand, he added.

While exports appear to be stabilizing, July's wider trade gap could raise some concerns for authorities.

Analysts say India's trade gap could widen more once authorities begin relaxing restrictions on gold imports imposed last year to tamp down on its demand.

High gold imports had driven India's trade gap to uncomfortably wide levels, pushing the rupee to record lows.

India's economy has struggled in recent years as a mix of economic problems such as high inflation and ballooning trade and fiscal deficits coupled with slow government policy-making hurt confidence of businesses and consumers. However, a new pro-business government elected this spring has generated optimism and led to an improvement in broader activity levels in the economy.

Growing exports are one indicator of the improving economy.

Rising industrial output has also given some upbeat signals that a slow recovery may be under way. Data Tuesday showed industrial output grew for the third month in a row in June.

Write to Anant Vijay Kala at anant.kala@wsj.com

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(END) Dow Jones Newswires

August 14, 2014 13:15 ET (17:15 GMT)

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