15th straight month of surplus
Statistics Indonesia reported the trade surplus at USD2.59 bn in Jul-21. The surplus was higher than our estimate and consensus at USD2.57 bn and USD2.32 bn, respectively. The higher trade surplus was due to the lower import value at USD15.1 bn where it decreased by 12.2% MoM (+44.4% YoY). Besides, the export also decreased by 4.53% MoM (+29.3% YoY) or recorded USD17.7 bn of total export. Commodity prices surge still played significant role as well as the low-base effect due to the impact of the pandemic last year on the trade performance. As expected previously on our previous trade review, we estimated the imports would be lower during the level-based mobility restriction (PPKM) and the Covid-19 cases surge. We still see the trade performance will be harmed in Aug-21, bringing the lower imports ahead.
Commodity prices surge
Lot of important commodities showed higher prices on monthly and yearly basis such as coal, ICP and tin where they increased by 77.6% YoY, 194.7% YoY and 94.7% YoY respectively. The prices hikes on these commodities played a significant role to counter the slowing exports performance. All of sector (OG, agriculture, manufacture and mining) decreased in monthly basis where the biggest laggard was oil and gas sector at -19.6% MoM (+50.1% YoY). From the selected non-OG sector, the biggest contributor (14.6% of total export) came from Animal and Vegetable Fats (HS 15) where it increased by 32.4% MoM to USD2.51 bn. From the selected top export commodities, the highest growth came from Fertilizers (HS 31) at 42.3% MoM to USD137.1 mn.
Weaker domestic manufacturer
IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) dropped from 53.5 in Jun-21 to 40.1 in Jul-21. The index moved below the 50-threshold, signifying the contraction. The second wave of Covid-19 cases in the beginning of Jul-21 was responsible for the lower performance of domestic manufacturer as it was the main reason of the Emergency PPKM enactment. It has dampened production and new order of manufacturing products. The plunge in the index signaled the first contraction for Indonesia manufacturing sector in nine months, with the fastest rate of decline since Jun-20. Manufacturing sector is significant as the import of raw material/intermediary goods was 75.8% of total import. All of imported goods based on the usage decrease: consumption goods (-1.62% MoM), intermediary goods (-11.4% MoM) and capital goods (-18.6% MoM). From the selected non-OG sector, the biggest contributor (14.6% of total import) came from Machinery (HS 85) where it decreased by 18.4% MoM to USD1.87 bn. Interestingly, Pharmaceuticals (HS 30) recorded quite high growth of import at 66.7% MoM (419.9% YoY) to USD464.6 mn during the pandemic.
Expecting unchanged policy rate
The wider trade surplus in Jul-21 was actually alarming as it indicated the weaker manufacturing industry while the export contracted as well. This is understandable, as we know under the current PPKM everything is under hardships including the trade performance. The ease of Emergency PPKM into level-based PPKM brings hope that the traffic of Indonesia international trade could be better. In addition, the current Baltic Dry index (BDI) has been increasing consistently since Jul-21. It gives hope that the international trade will be more robust ahead for Aug-21 data reading. However, amid the thick trade surplus, we see that Bank Indonesia (BI) will hold the BI-7DRRR at 3.5% in the next BoG Meeting in Aug, 18th – 19th 2021 in order to stay competitive yet accommodative towards the market.