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ECONOMIC UPDATE - External trade review - Biggest trade surplus since 2011



Starting 3Q20 with trade surplus

Jul-20 trade surplus was recorded as the second highest surplus at USD3.26 bn from the highest surplus at USD3.57 bn in Aug-11. Higher than our and consensus estimates, total exports increased by 14.3% MoM (-9.90% YoY) to USD13.7 bn while imports slipped by 2.73% MoM (32.5% YoY) to USD10.5 bn. The deceleration may happen due to the still-weak global demand, reflected by the significant drop at 25.2% on Baltic Dry Index (BDI). The index serves as proxy for dry bulk shipping stocks such as coal, mineral, etc. The drop may be caused by prohibitions and restrictions applied by large exporters-importers in some countries where second wave of Covid-19 occurred in Jul-20. However, in Aug-20, BDI has increased at 15.2% or signalized the growing of export-import process among countries. Hopefully, this may bring better trade performance in this month in line with the other countries’ decreasing cases of Covid-19.


3-month consistent growth

Amid the still-weak global demand, Indonesia export showed consistent increases from May-20 in monthly basis. The export price increase at 9.49% MoM was not followed by the increase of the export value. It brought decrease on export instead as the export volume was slipped by 17.7% MoM. Just like Jun-20, the volume effect brought a bigger role for export performance in Jul-20. For ICP itself, it increased by 10.8% MoM to USD40.6/barrel. For non-OG commodities, some commodities showed price increases as well such as crude palm oil (6.53% MoM), rubber (5.92% MoM) and other important commodities. Gold still recorded high increase at 6.6% MoM (30.7% YoY). Non-OG sector grew by 13.9% MoM to USD13.0 bn where the biggest contributor was still animal or vegetable fats and oil (HS 15) where it increased by 17.3% and contributed 12.4% to total export. 


Manufacturers are better off

All of imported goods based on its usage decreased in monthly basis except capital goods: consumption goods (-21%), intermediary goods (-2.5%) and capital goods (+10.8%). Raw/intermediary good still ranks the chart as the biggest imported goods (73.9% of total import), followed by capital goods (15.9%) and consumption goods (10.2%). Consumption goods decreased due to the significant halt of garlic and fruits import from China and medicaments from UK. Intermediary goods slipped due to the halt of raw sugar, cereals and defatted soy flour import from US and Latin America. The increases on capital goods came from the increase of drilling, shipping, electrical components and other components. The increase of capital goods import indicates the growing manufacturer in Indonesia and this may bring better domestic industry production ahead. Based on the goods classification, machine and mechanical equipment (HS 85) was the highest contributor of import where it grew by 15.8% MoM to USD1.6 bn as it contributed 14% of total import. 


Room for rate cut

Amid the weak global demand due to the pandemic, we see the slight growth of export is a glimmer of hope. Besides, IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) showed a positive signal as well where it jumped from 39.1 in Jun-20 to 46.9 in Jul-20. Even though the index was still under 50, we see an improvement there where it leads to a better performance for Aug-20, supported by the growing BDI globally. The big trade surplus provides room for rate cut for Bank Indonesia (BI) on 18-19th August Meeting. However, we see BI will keep the rate unchanged at 4% in a move to safeguard the country’s macroeconomic stability amid recessionary risks from the pandemic.