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ECONOMIC UPDATE - External trade review - Trade surplus widens on lower imports



August trade surplus surges to double forecast as imports fall

According to Statistics Indonesia (BPS), Indonesia's trade surplus jumped by 138.1% MoM to USD3.12 bn in August, primarily due to lower imports. This figure surpasses our estimate of USD2.16 bn and double the consensus estimate of USD1,5 bn. However, on an annual basis, the trade surplus exhibited weaker performance, contracting by -45.28% YoY from USD5.71 bn in the same month of the previous year. Looking at the cumulative performance in the first eight months of 2023,  the trade surplus decreased by -30.24% YoY, dropping from USD34.89 bn in 8M22 to USD24.34 bn in 8M23. Indonesia has maintained a positive trend in international trade since May 2020, resulting in 40 consecutive months of trade surplus. Looking forward, it is expected that export performance will continue to weaken due to falling commodity prices, a consequence of reduced global demand. Furthermore, the consistent application of higher interest rates by many central banks in response to ongoing inflationary pressures is projected to have an adverse impact on the real sector's performance. In contrast, imports are poised to outpace exports, driven by the sustained strength of the domestic economy. As a result, our forecast points to a further narrowing of the trade surplus, with the possibility of the balance turning into a deficit. As a result, we maintain our expectation that the current account could show a small deficit of -0.5 % of GDP in 2023, compared to a surplus of 1.0 % of GDP in 2022.


Exports uptick driven by commodity prices

Total exports posted a decline of -21.2% YoY, reaching USD22.0 bn in August 2023. Furthermore, this decrease represented a deeper contraction compared to the previous month's -18.03% YoY drop. Moreover, this figure was slightly below the estimated -20.67% YoY but inched up from the consensus projection of -22.60% YoY. On a monthly basis, total exports increased by 5.47% MoM. Specifically, oil and gas (OG) exports increased by 7.5% MoM to USD1.31 bn, while non-oil and gas (NOG) exports grew by 5.35% MoM to USD20.68 bn. The primary destinations for non-oil and gas exports in August 2023 were China at USD5,375 mn (+9.36% MoM), followed by the United States at USD2,129 mn (+4.67% MoM), and India at USD1,843 mn (+1.07% MoM). We believe that the export trend is influenced by commodity prices. On a monthly basis, CPO and coal prices increased by 2.25% MoM and 13.61% MoM, reaching USD3,860/MT and USD156/ton, respectively. However, on a yearly basis, CPO and coal prices decreased by -3.57% YoY and -63.29% YoY, respectively. Additionally, CPO and coal exports represent 22.4% of total exports.


Imports dip on lower intermediary goods

The total imports contracted by -14.8% YoY, reaching USD18.89 bn, which was deeper than our and consensus estimates of -9.94% YoY and -9.00% YoY, respectively. Furthermore, when examining the monthly perspective, total imports dipped by -3.53% MoM. To delve into the details, both OG and NOG imports saw contraction growth, decreasing by -15.01% MoM and -1.34% MoM, reaching USD2.66 bn and USD16.21 bn, respectively. Raw/intermediary goods continued to dominate the import sector, accounting for 73% of the total imports, contracting by -4.13%MoM and -20.39% YoY, respectively. Among the selected non-OG sector, the largest contributor (comprising 18.28% of total non-oil and gas imports) was machinery/mechanical appliances and part thereof (HS 84), which experienced 1.58% MoM increase but -0.52% YoY decrease, totaling USD2.96 bn. Additionally, the primary import commodities such as oil, exhibited a 2.20% MoM rise but a -6.64% YoY decrease, falling to USD83.6/bbl. Although import experienced a contraction, business activity continued to expand, as reflected by manufacturing purchasing manager index (PMI), which climbed to 53.9 in August 2023, up from 53.3 in the previous month.


Anticipating future oil price hike

The government should proactively anticipate the possibility of future oil price increases. Several factors influence the rise in oil prices. First, according to the Energy Information Administration (EIA), in July, global oil demand reached 101.38 mn barrels per day, surpassing the available supply, which stood at only 101.33 mn barrels per day. Second, OPEC+ is committed to maintaining price stability by adhering to production targets. Saudi Arabia, which contributes 25% of the total OPEC+ production, expressed its commitment in August 2023 to extend voluntary cuts of 1 mn barrels per day until the end of 2023. Furthermore, in August 2023, Russia also aimed to reduce oil exports by 300 thousand barrels per day until the year's end. On the other hand, China's economic slowdown could alleviate concerns regarding rising global oil prices.