ECONOMIC UPDATE - External trade review - Serendipitous surplus

 

Winner of the race: export, for now

Indonesia export and import data got too close to call. In Oct-19, export broke out of a neck-and-neck game with import and left trade balance on surplus of USD161.3 mn. Right after Indonesia recorded deficit on trade balance a month before, the surplus came from the exports that rose by 5.92% MoM from USD14.09 bn to USD14.93 bn while the imports grew slower by 3.57% MoM from USD14.26 bn to USD14.77 bn. On the consensus, only 3 out of 19 who estimated surplus would happen as the consensus went along with deficit of USD300 mn while we estimated the deficit would be at USD190.3 mn. The surplus happened due to higher surplus at non-oil and gas (non-OG) of USD990.5 mn although the OG sector still posted deficit of USD829.2 mn. However, the exports and imports grew positively MoM, they shrank by -6.1% YoY and -16.4% YoY respectively. This resonates mixed feeling since the surplus was resulted by the lower import due to the weakening global trade instead of stronger export substantially. 

 

Tremendous hit on OG sector

In Oct-19, export of crude oil and natural gas increased by 28.4% and 23.4% MoM to USD121.6 mn and USD624.5 mn, respectively. The decrease came from the oil product by -21.54% to USD180.1 mn. This is important since OG sector contributed 6.20% of total export. On the other hand, the decrease of export on yearly basis actually hid the significant plummet on OG sector by -40.07% YoY. In addition, oil export posted a sharp decline of 80.97% YoY. If we look deeper, the oil export volume contraction by -63.32% YoY may explain the plunge of oil exports. Hit by a drop in global prices by -22.19% YoY and competition from another OG giant countries, makes Indonesia’s export on OG sector gets weaker. However, approaching to winter in some countries including China, there is a hope that the export of OG sector will grow higher as winter strongly influences residential and commercial demand due to higher needs of heating.

 

Fuels for the win!

The stronger export on monthly basis was supported by the mineral fuels, mineral oils and products of their distillation export (HS Code 27) which contributed 13.5% to total export in Oct-19 as it brought USD1.9 bn to Indonesia. The number was followed by vegetable saps and extracts export as it contributed 10.8% to total exports or equaled to USD1.51 bn of export value even though it posted a decrease on its growth by -41.1%. September impressive increase in ships, boats and floating structures export (by 453.1% MoM) was offset by last month fall by -86.68% MoM. 

 

Intermediate goods still dominate the imports

Raw/intermediate goods contributed the most (USD10.9 bn) by having shares as much as 73.7% to total import but it became the biggest laggard as it slowed down by -18.7% YoY while compared to Sep-19, it grew by 6.17% MoM. Capital goods contributed the second highest (USD2.44 bn) by 16.5% to total import. In line, capital goods slowed down by -11.3% YoY (and -5.9% MoM). The least contributor of import was consumption goods (USD1.4 bn) that took 9.7% of total shares on import. Again, it slowed down by -4.4% YoY but increased by 2.0% MoM. Based on the goods classification, the ships, boats and floating structures import displayed the weakest growth by -24.9%. This is a soft reminder that the slowing down import of goods production (raw/intermediate and capital goods) may retard export due to the needs of some component to be assembled domestically.

 

Trade surplus to support BI’s dovish stance

Although the trade surplus was unexpected, it brought serendipity for the economy. The improving of current account deficit (CAD) in 3Q19 and Oct-19 unexpected trade surplus may lead BI to become firmer to be more dovish. BI may cut its benchmark rate 7DRRR by another 25 bps to 4.75% for the rest of the year. The cut should be aimed to boost the economy with the support of stable inflation and the stronger Rupiah against US Dollar.