Indonesia: February 2019 trade
February 2019 trade
- The trade balance swung into a surplus of US$330m in February amid a steeper contraction in imports relative to exports.
- February’s rebound lowered cumulative trade deficit to US$734m in 2M19 (- US$809m in 2M18), easing pressure on the current account deficit (CAD).
- Slowing global growth momentum remains a key downside risk. We expect Bank Indonesia to keep the policy rate unchanged at 6.00% next week.
First trade surplus in five months…
Weak trade performance unexpectedly lifted Indonesia’s trade balance to a US$300m surplus in February (-US$1.1bn in January). Both exports and imports missed expectations, with imports contracting at a faster pace (-14.0% yoy in February vs. -2.1% yoy in January) relative to exports (-11.3% yoy in February vs. -4.3% yoy in January). Indonesia’s export contraction tracked the export performance of other Asian peers.
…due to a rebound in the non-O&G trade balance
Non-O&G imports fell for the first time since Jun 2017, and helped to lift non-O&G trade balance (+US$794m vs. -US$642m in January). O&G trade deficit was little changed (- US$464m in February vs. -US$422m in January) as falling O&G imports were offset by further contraction in O&G exports.
Disappointing exports amid slowing global growth momentum
Indonesia has yet to reap the benefits of trade diversion from the US-China trade conflict. Non-O&G exports to China have been on a decline in the past five months, at an increasingly steeper pace (-18.1% yoy in 2M19), while non-O&G exports to the US remained muted (-1.6% yoy in 2M19). Slowing global growth momentum weakened nonO&G exports to other key trading partners, such as Japan (-15.9% yoy in 2M19), Singapore (-20.7% yoy), Malaysia (-7.3% yoy), Thailand (-5.2% yoy), and the EU (-9.6% yoy). Slowing external demand was reflected in the large deceleration in export volume expansion (+5.3% yoy in February vs. +14.6% yoy in Jan), while export price growth remained lacklustre (-15.8% yoy in February vs. -16.5% yoy in Jan) amid lower commodity prices.
Broad-based weakness in import demand
Weakness in import growth was across the board, led by lower import prices (-5.2% yoy in February vs. -6.8% yoy in January) and import volume (-9.3% yoy vs. +5.0% yoy in January). By category, higher import taxes dampened imports of consumption goods (-26.9% yoy in February vs. -10.5% yoy in January), while imports of raw materials (-15.0% yoy vs. -0.4% yoy in January) and capital goods (-0.8% yoy vs. -5.0% yoy in January) also declined.
Bank Indonesia expected to maintain policy rate
The rebound in February’s trade balance lowered cumulative trade deficit to US$734m in 2M19 (-US$809m in 2M18), easing pressure on the current account deficit (CAD) position. Nonetheless, easing global growth and its impact on commodity prices remain a key downside risk. Hence, we expect Bank Indonesia to leave its 7-Day Reverse Repo Rate (7DRRR) at 6.00% at the Board of Governors’ meeting on 21 March.
Originally published by CIMB Research and Economics on 15 March 2019.