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ECONOMIC UPDATE - External trade review - All-time high surplus



18th straight month of surplus

Statistics Indonesia reported an all-time high trade surplus at USD5.74 bn in Oct-21. The surplus was higher than our estimate and consensus at USD4.07 bn and USD3.85 bn, respectively. The higher trade surplus was due to the export value surging on the back of commodity prices hike to USD22.0 bn where it increased by 6.89% MoM (53.4% YoY). Thanks to coal for increasing commodity prices lately but we will see the lower contribution of coal in the trade balance Nov-21 after China leading coal producers try to cap coal prices amid energy crisis ahead of winter season. However, we expect the high commodity prices condition will likely continue until the YE 2021 as Indonesia benefit from the energy crunch that is happening in developed countries. 


Commodity price effect

Still related to commodity price hike, some Indonesia’s important commodity prices resume their price hike. ICP jumped by 13.3% MoM (144.9% YoY) in Oct-21. Other commodities surged as well such as coal, kernel oil and palm oil where they increased by 27.6% MoM, 26.6% MoM and 10.6% MoM respectively. All of sector showed export increase on export in monthly basis. From the selected non-OG sector, the biggest contributor (15.5% of total export) came from Animal and Vegetable Fats (HS 15) where it increased by 19.1% MoM to USD3.36 bn. From the selected top export commodities, the highest growth came from Residue and Waste from the Food Industries (HS 23) at 42.1% MoM to USD176.1 mn. The food industries residue and waste are the processed products in food factories like leftovers from processed beans.


Improvement on domestic manufacturer

IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) increased from 52.2 in Sep-21 to 57.2 in Oct-21. The index moved above the 50-threshold, signifying the expansion. The growing manufacture sector was due to the easing of level-based PPKM. Both manufacturing output and new orders increased with an improvement from foreign demand. Manufacturing sector is significant as the import of raw material/intermediary goods is 75.5% of total import. All of imported goods based on the usage increased on monthly basis except consumption goods (-11.2 MoM). The growth on intermediary goods (1.77% MoM) and capital goods (1.92% MoM) show the domestic manufacturers are getting stronger. With better performance of domestic manufacturers, Indonesia minimizes the risk of goods shortage. The biggest contributor (14.8% of total import) came from Machinery (HS 84) where it decreased by -3.76% MoM (24.8% YoY) to USD2.22 bn. From the selected non-OG sector, Sweetener (HS 17) recorded the highest growth at 60.8% MoM (45.5% YoY) to USD222.1 mn. 


China slows down

Even though we expect the commodity price remains high until YE 2021, the global trade performance reflected by Baltic Dry index (BDI) slipped three-month low in Nov-21. The declining demand out of China is behind much of the weakness of global trade performance. Increasing iron ore stockpiles in China seemed the reason of lower demand for large cape size vessels, which weighed on the BDI. Besides, the effort of China government in increasing coal supplies domestically added the declines in ocean freight. This may be a challenge for Indonesia export in Nov-Dec 2021. However, we remains optimistic as once the stockpiling is done, the trade traffic will go back to normal.


Policy rate remains the same

With the all-time high trade surplus, this brings positive sentiment, liquidity and stronger external resilience for Indonesia. 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 Nov, 17th – 18th 2021 in order to stay competitive yet accommodative towards the market.