20th straight month of surplus
Statistics Indonesia reported a trade surplus at USD1.02 bn in Dec-21. The surplus was lower than our estimate and consensus at USD2.75 bn and USD3.51 bn, respectively. Thus, Indonesia recorded an enormous trade surplus at USD35.3 bn in overall 2021. The export rose by 41.9% YoY to USD231.5 bn, while the import rose by 38.6% YoY to $196.2 bn in 2021. However, the surplus dropped by 71.1% MoM indicating the reversal of thick trade surplus era. Moving forward, we see that Indonesia should prepare to say goodbye to thick trade surplus as the commodity prices start to normalize. Besides, Indonesia will have no privilege from low level of trade as the recovery has already started since 2021. We expect the trade balance will start to whimper in 2Q22.
Commodity price to normalize
In 2021, Indonesia experienced a commodity boom from natural resources like coal, CPO and nickel while was struggling with the pandemic that weakening the import side. 4Q21 may be the last era of commodity price hike under pandemic. In Dec-21, some Indonesia’s important commodity prices showed decreases such as coal (-3.22%), CPO (-4.72%) and oil (7.48%) on monthly basis. Except manufacturing, all of sector showed export decrease on export in monthly basis. The top laggard was oil and gas sector that plummeted by 17.9% MoM. From the selected non-OG sector, the biggest contributor (14.9% of total export) came from Mineral Fuel (HS 27) where it decreased by 21.3% MoM to USD3.25 bn. From the selected top export commodities, the highest growth came from Nickel (HS 75) at 64.6% MoM to USD235.6 mn.
Expansive domestic manufacturer
IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) lowered from 53.9 in Nov-21 to 53.5 in Dec-21. Even though it slipped, the index was still above the 50-threshold, signifying the expansion. Manufacturing sector is significant as the import of raw material/intermediary goods is 75.1% of total import. All of imported goods based on the usage increased on monthly basis: consumption goods (24.5% MoM), raw material/ intermediary goods (9.07% MoM) and capital goods (8.01% MoM). The biggest contributor (15.1% of total import) came from Machinery (HS 84) where it increased by 15.3% MoM (40.3% YoY) to USD3.04 bn. From the selected non-OG sector, Mineral Fuel (HS 27) recorded the highest growth at 60.8% MoM (148.1% YoY) to USD492.9 mn.
Anticipate the export ban
In Jan-22, the government has banned coal export after the supplies at domestic power plants fell to critically low levels. If the export ban was prolonged, we may expect the trade deficit may come back faster as coal exports make up around 14% of Indonesia’s total export. Eventually, the export ban has been eased for miners that had met a requirement to sell a portion of their output for local power generation. We will anticipate another future export ban on coal and other commodities in 2022 that may impact the trade balance.
Unchanged policy rate
Although the trade surplus shrank, it still provides liquidity and stronger external resilience for Indonesia. Moving forward, we expect the commodity prices will normalize so the price will be lower and we expect the trade balance will go back to deficit in 2Q22. However, amid the current trade surplus, we see that Bank Indonesia (BI) will hold the BI-7DRRR at 3.5% in the next BoG Meeting in Jan, 19th – 20th 2022 in order to stay competitive yet accommodative towards the market.