ECONOMIC UPDATE - External trade review - Trade nosedive



Similar with GFC trade plunge 

Compared to Global Financial Crisis (GFC), Indonesia trade performance in May-20 is similar with the figure of trade performance back in last 12 years. The downside risk of GFC dragged down Indonesia trade performance where in 2009, in average, Indonesia’s export and import value were USD9.7 bn and USD8.1 bn, respectively, generating surplus of USD1,6 bn. In May-20, despite the higher trade surplus of USD2.1 bn, export and import displayed a big plunge of -29% YoY and -42.2% YoY, an unusual deceleration on Indonesia trade performance. With USD10.5 bn of export, May-20 export figure is the second lowest of export value since the 2009 export figure. In line, May-20 import is the lowest of import value since 2009. It is arguably true that the shock of GFC and Covid-19 pandemic is quite different since the lockdowns have severely hampered supply and demand side, including to Indonesia trade performance. However, it took about 12 months after the Lehman Brothers collapse of September 15th 2008 for the export value coming back to the pre-crisis level or accelerated by 31% YoY.


Glimpse of hope for raw material exporter

Export plunge was mainly caused by the price fall of almost all important commodities such as coal (-10.4% MoM) and palm oil (-5.75% MoM)where these commodity prices have dropped at double-digit rates in Apr-20. On the oil and gas (OG) sector, it showed improvement as the export value grew by 15.6% MoM to USD652 mn despite of the lesser price fall rate at 7.8% MoM. Non-OG sector contracted by 14.8% MoM to USD9.88 bn but some significant commodities such as steel and iron (HS 72) and ores, slag and ash (HS 26) showed an increase on export by 18.1% and 17.6% MoM. This signalizes foreign manufacturers start to operate once more after the lockdown. In short run, exporters who supply foreign demand of raw/intermediary material inputs are benefited from the reopening of our trading partners’ economies. However, as the second waves in some major countries happen, we may see another slow down in our trade performance for the medium run.


Sharper fall on import

Based on the use of the imported goods, consumption goods decreased by 23.1% MoM to USD934 mn. The raw/intermediate goods fell by -34.6% MoM to USD6.1 bn and capital goods fell by 29.0% MoM to USD1.4 bn. Raw/intermediate good still ranks the chart as the biggest imported goods (75.1% of total import), followed by capital goods (15.3%) and consumption goods (9.59%). This sharp fall of imports happened due to the end of festivity months and the halt of domestic production. Based on the goods classification, machine and mechanical equipment (HS 84) were the highest contributor of import where it fell by 30.6% MoM to USD1.27 bn but still contributed as much as 17.1% to total import. 


Unfavorable surplus

As the PSBB halt the manufacturing process, it is understandable that the trade performance took nosedive or a steep downward plunge in May-20. IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) that plummeted to 28.6 in May-20 emphasizes the contraction that happen to domestic manufacturers. Thus, the surplus does not necessarily mean a favor. However, the government has prepared health protocols for some sectors as effort to spur the economy while avoiding the second wave of outbreaks in Indonesia. Looking at the smaller trade deficit compared to 2018 and 2019, it may bring positive sentiment on rupiah where the currency appreciation is getting firmer around Rp14,100/USD. With the relaxation of PSBB here and elsewhere, we expect a better trade performance in Jun-20. Needless to say, the trade performance will be getting better when other countries as our key trade peers recover from Covid-19.