27th straight month of surplus
Statistics Indonesia recorded trade surplus at USD4.23 bn in Jul-22 or higher than our estimate and consensus estimates USD3.29 bn and USD3.95 bn, respectively. However, the export slipped by 2.2% MoM (+32% YoY) to USD25.6 bn. On the other hand, the import increased by 1.64% MoM (39.9% YoY) to USD21.4 bn. The export slightly sloped down due to the soft decline of several main commodities like palm oil, nickel, and natural gas accompanied with the relatively stagnant export volume. Needless to say, the import has not been impacted by the rising tension between China and Taiwan lately so it still grew, supported by the better domestic manufacturing performance in Jul-22.
End of commodity supercycle?
During the pandemic, Indonesia has been experiencing the blessing in disguise from the commodity supercycle. It is an extended periods during which commodity prices are well above or below their long-run trend. Under current context, the commodity prices remain to rise in 2022 due to several factors: increasing demand for energy and food commodities amid the global economic recovery, weather disturbances, until the prolonged Russia-Ukraine war. However, the current windfall export earnings from the commodity prices hike may start to dwindle. The most important commodity for Indonesia’s export, CPO has plunged by 14.4% MoM as well as coal by 5.52% MoM in Jul-22. After all this time, the jump on trade performance rides on the back of price hike, not really on the solid improvement of trade fundamentals. Thus, the government has to be cautious, as the commodity price hike is not forever. Developing the downstream industries is one of the solutions that the government is working on to cope up with the end of the commodity supercycle.
Based on sector, all of sectors increased in yearly basis of which mining led the way by growing at 92.1% YoY. From the selected non-OG sector, the biggest contributor (18.8% of total export) came from Mineral Fuel (HS 27) where it increased by 6.86% MoM to USD5.51 bn. The biggest jump came from Pulp (HS 47) at 48.5% MoM to USD376.3 mn. Despite of the conflict between China and Taiwan, China remains Indonesia’s biggest trade partner as it contributed by 20.9% of total non-OG export in Jul-22.
Expansive domestic manufacturer
All of the imported goods based on the usage increased on yearly basis, led by raw material/ intermediary goods (44.5% YoY) or equal to 77.7% of total import. This was supported by the higher IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) at 51.3 in Jul-22 from 50.2 in Jun-22. It was still above the 50-threshold, signifying the expansion. There was a further rise in output as greater client demand drove up the production levels with the quickest pace of expansion for 3 months supported by the greater new order inflows. From the selected non-OG sector, the biggest contributor (15.4% of total import) came from Machinery (HS 84) where it decreased by 6.28% MoM (+39.6% YoY) to USD2.62 bn.
Unfazed Bank Indonesia
The higher-than-expected surplus is back and it serves as the cushion to current account deficit for 3Q22. However, despite of the thick surplus, we expect Bank Indonesia (BI) remains on its accommodative stance to hold the interest rate unchanged at 3.5% on the next BoG Meeting in Aug, 22nd – 23rd 2022 as the core inflation in Jul-22 was still manageable. To tackle the inflationary pressure, BI still maintains its other monetary instruments to take effect in 2H22.