ECONOMIC UPDATE - External trade review
An impressive turnaround
Huge surplus in March brought back 1Q18 trade balance to positive
After posting a continuous deficit in the first two months in 2018 (totaling USD -872 mn), finally March trade balance was back to surplus. Trade surplus of USD1.09 bn in March did not only show sign of reversal but it also more than offset the previous two months deficit, bringing 1Q18 trade balance back to surplus territory at USD0.2 bn and ensuring current account deficit (CAD) in 1Q18 to be manageable. However, the surplus was driven by more moderate growth of import while export growth was still stagnant.
Export growth got much help from mineral export relaxation rules
Statistics office (BPS) reported Indonesia export grew 6.1% YoY (10.24% MoM) to USD 15.6 bn in March. Oil and gas sector posted negative growth at -11.46% YoY (3.81% MoM) while non oil and gas sector had 8.16% YoY (11.77% MoM) growth in March. The growth in March was lower than February (11.76% YoY; -3.14% MoM) but the real growth (export volume) at 8.1% YoY (12.66% MoM) was in line with our real export growth (as calculated in GDP) target at 8.1% YoY. Assessing 1Q18 export data, we still had similar opinion with our latest trade balance report in February that mineral export relaxation rules played a significant role in maintaining Indonesia export growth momentum. For 1Q18, ore, crust and metal sector export reached USD 1.36 bn or 193.28% higher than 1Q17. Assuming no mineral export relaxation rules which means ore, crust and metal sector export was stagnant from 1Q17; we found that the March export only reached USD 14.68 bn or 0.3% YoY growth. Furthermore, lower CPO price (-21.2% YoY in 1Q18) became the main laggard of Indonesia export as its export value was down -17.34% YoY. March export performance brought 1Q18 export to USD 44.26 bn or 8.78% higher than 1Q17.
Import growth could not maintain the momentum
Import growth could not maintain its momentum as its growth in March was recorded only 9.1% YoY (2.13% MoM), making import value in March 2018 at USD 14.5 bn. The most worrying data for March import came from the real growth (volume growth) which had negative growth at -3.33% YoY (-5.47% MoM). Based on usage, we could see that negative growth of consumption goods (-9.54% YoY) dragged down import growth in March. However, we see a potential pick up of consumption goods import growth starting April as domestic firm will face Ramadhan period starting in May. Capital goods still posted a strong growth at 21.6% YoY in March, indicating that strong investment growth may continue in 1Q18. March performance brought 1Q18 import at USD 43.98 bn or 20.12% higher than 1Q17
Maintain FY 2018 CAD forecast at 2.1% of GDP
The huge trade surplus in 1Q18 eased the nerve of unmanageable CAD in 1Q18. Although we predicted import performance will remain strong in next quarters with stagnant export growth, we still see it will not make current account deficit deviate far from our target at 2.1% of GDP. Moreover, the still-robust import growth remains consistent with a continued recovery in domestic demand, which we believe will support investment-led stronger GDP growth of 5.3% in 2018.