Indonesia: September 2018 CPI inflation
September 2018 trade
- Steeper moderation in import growth led to the turnaround in trade balance to a surplus of US$227m in September, but 3Q18 trade deficit rose to a 5-year high.
- Weakening Rp/US$ and the government’s measures to curb imports saw month-on-month contraction across all three import categories in September.
- We estimate a smaller current account deficit (CAD) for 3Q18 at US$7.2bn (2.8% of GDP) due to higher travel surplus and lower dividend payments.
The rebound in September’s trade balance…
The trade balance rebounded to a surplus of US$227m in September (-US$994m in August), supported by a wider non-O&G trade surplus (+US$1.3bn vs. +US$667m in August) and a smaller O&G trade deficit (-US$1.1bn vs. –US$1.6bn in August). The turnaround was in line with our expectation (albeit weaker than expected) as well as the trend observed in 1H18.
… tracks the trend of goods surpluses in March and June
In 2018, the trade balance has tended to rebound in the final month of each quarter on the back of more subdued import growth (+14.2% yoy in September vs. +24.5% yoy in August). This trend may indicate that authorities are actively managing downside risks to the quarterly current account. Nonetheless, given that export growth in September was weakerthan-expected (+1.7% yoy in September vs. +4.5% yoy in August), the trade surplus recorded in September was considerably lower than in March and June.
Commodities the key drag on underperforming exports
The regulation by Ministry of Energy and Mineral Resources requiring all O&G producers to sell crude oil to Pertamina may have been the reason for the decline in O&G export and import volumes. Weaker aggregate export prices (-1.4% yoy in September vs. +2.4% yoy in August), particularly from lower palm oil and rubber prices, offset stronger export volumes (+3.1% yoy vs. +2.1% yoy in August) from the non O&G segment, sending overall export growth to a 15-month low.
Milder expansion across all three import categories
Import growth of consumer goods (+18.3% yoy in September vs. +30.3% yoy in August), raw materials (+13.1% yoy vs. +25.0% yoy in August) and capital goods (+17.1% yoy vs. +18.9% yoy in August) all eased in September. Moreover, all three key import categories have seen month-on-month declines for the second consecutive month in September, potentially reflecting weaker demand as a result of the weakening rupiah as well as the government’s measures to curb import growth.
3Q18 CAD may improve to 2.8% of GDP despite higher trade deficit
The quarterly trade deficit widened to US$2.7bn in 3Q18 (-US$1.4bn in 2Q18), the highest in five years. Nonetheless, we estimate a smaller current account deficit at US$7.2bn, or 2.8% of GDP in 3Q18 (-US$8.0bn, or -3.1% of GDP in 2Q18), due to lower dividend payments abroad and a higher travel surplus.
Originally published by CIMB Research and Economics on 15 October 2018.