ECONOMIC UPDATE - External trade review - Wary of China’s lockdown



23nd straight month of surplus

Statistics Indonesia reported a trade surplus at USD4.53 bn in Mar-22. The surplus was higher than our estimate and consensus at USD3.79 bn and USD3.04 bn, respectively. In Mar-22, exports rose by 29.4% MoM (44.4% YoY) to USD26.5 bn, as well as the increase on imports by 32.0% MoM (30.9% YoY) to USD21.9 bn. Commodity price hike was still the main topic of last month catalyst of the Indonesia’s consistent trade surplus, e.g.: natural gas (55.6% MoM), coal (49.1% MoM), oil (18.6% MoM) and CPO (16.7% MoM).


Thanks to commodity price hike

Based on sector, all of sectors increased in monthly and yearly basis especially mining and other sector where it grew by 50.2% MoM (143.9% YoY). From the selected non-OG sector, the biggest contributor (12.6% of total export) came from Animal and Vegetable Fat (HS 15) where it jumped by 27.1% MoM to USD3.07 bn. From the selected top export commodities, the highest growth came from Nickel (HS 75) at 184.2% MoM to USD569.7 mn. There is a cut in nickel supply as several countries have reduced their exports of raw nickel or ore due to the global political tension. Most importantly, Russia is one of the big suppliers of nickel as it produced nearly 13% of the global nickel in 2021.


Expansive domestic manufacturer

IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) inched up from 51.2 in Feb-22 to 51.3 in Mar-22. The index moved above the 50-threshold for sixth straight month, signifying the expansion. All of imported goods based on the usage increased on monthly and yearly basis: consumption goods (51.2% MoM), raw material/ intermediary goods (32.6% MoM) and capital goods (20.3% MoM). From the selected non-OG sector, the biggest contributor (15.8% of total import) came from Machinery (HS 84) where it increased by 18.6% MoM (34.9% YoY) to USD2.73 bn. From the highest growth, it was Iron and Steel (HS 72) at 39.8% MoM (34.6% YoY) to USD1.38 bn. 


Threat from abroad lockdown

Trade performance relies on mutual benefit among two countries or more. By having strict Covid-19 lockdown, it is likely to hinder the trade performance. China’s Shanghai just reported death of three elderly patients since authorities imposed a lockdown in Apr-22. In response, authorities have doubled down on longstanding zero-tolerance approach to the Covid-19. Twenty-five mn people in Shanghai have been sequestered for 18 days, not to mention Shanghai is one of the largest manufacturing centers in China, heavily on automotive and electronics suppliers. Exports produced in Shanghai account for 7.2% of China’s total volume and around 20% of China’s export container utilizes the port there.


China’s lockdown direct impact to Indonesia

From the officials, it seems that the government still keeps the unwavering commitment to “zero-Covid strategy” despite of its detrimental effect towards other countries and its people’s well-being more importantly. Thus, we see it may affect Indonesia manufacturers since machine, electronics and automotive are among the top 5 of Indonesia’s biggest import over time and mostly come from China. For export, China accounts for 20.2% of Indonesia total export and 32.8% of Indonesia total import, making China as top Indonesia’s trade partner.


Unchanged policy rate

The thick trade surplus provides liquidity and stronger external resilience for Indonesia. We may witness the trade surplus persists in 2Q22 if several countries reimposing mobility restrictions due to the Covid-19 cases, just like China. 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 Apr, 18th – 19th 2022 as there is no fundamental uptick in inflation so far.