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ECONOMIC UPDATE - External trade review - Trade surplus falls to the lowest level since May-23

Trade surplus dips on the oil and gas deficit

According to Statistics Indonesia (BPS), Indonesia's trade surplus declined by -1.13% MoM and -4.54% YoY to USD0.87 bn in Feb-24 (vs. USD2.02 bn in Jan-24), marking the lowest trade surplus since May-23. Furthermore, the trade surplus was lower than our projection at USD2.05 bn and the consensus estimate of USD2.32 bn. Despite this decline, Indonesia has maintained a positive trend in foreign trade since May 2020, resulting in a 46-month trade surplus. This small surplus was mainly driven by a surplus of USD2.63 bn from Non-Oil and Gas (NoG), partially offset by a deficit of -USD1.76 bn in Oil and Gas (OG). Notably, the United States emerged as the largest contributor to the trade surplus, amounting to USD1.44 bn in Feb-24. On the other hand, China became the biggest contributor to the trade deficit, totaling –USD1.86 bn. Cumulatively, total trade surplus decreased to USD2.87 bn in 2M24 (vs. USD9.28 bn in 2M23). Looking forward, we expect export performance to continue declining due to the moderation of commodity prices and the global economic slowdown. However, imports of consumer goods and raw materials are expected to increase due to robust household consumption and expansion in manufacturing. Consequently, our projections suggest a continued contraction of the trade surplus. Currently, we anticipate the current account balance to potentially show a further deficit of -0.4% of GDP in 2024.


Export performance falls as China and India demand slumps

Total exports dipped by -5.79% MoM and -9.45% YoY to USD19.31 bn in Feb-24, marking the lowest recorded figure since Apr-3. This figure fell below both our projected estimate of -7.66% YoY and the consensus estimate of -6.50% YoY. Cumulatively, total exports decreased by -9.45% YoY to USD39.80 bn in 2M24.  Breaking down in the numbers, exports of oil and gas (OG) reached USD1.22 bn in Feb-24 (-12.93% MoM but +2.56% YoY), while non-oil and gas (NOG) exports decreased by -5.27% MoM and -10.15% YoY to USD18.09 bn in Feb-24. This decline in exports can be attributed to reduced demand from key markets such as China and India, amounting to –USD489.50 bn and –USD258.4 bn, respectively. Notably, China remained the primary destination for NOG exports at USD4.06 bn (-19.26% MoM, and -10.75% YoY), followed by the United States at USD2.10 bn (+10.02 % MoM, and + 5.68% YoY), and India at USD1.52 bn (-14.48% MoM, and -5.33% YoY). In terms of a main commodity basis, CPO export decreased significantly by -30.39% MoM and -39.58% YoY to 1.20 bn), despite a monthly price increased by 4.05% MoM to USD4025/MT in Feb-24. This decline was primarily influenced by reduced demand from China following its economic growth slowdown. Moreover, the World Bank predicts a slowdown in China's economic growth from 5.6% YoY in 2023 to 4.6% in 202. Meanwhile, the increase in CPO price is attributed to lower production due to the El-Nino effect. It is anticipated that the average price of CPO will rise to USD4,500/MT this year (vs. USD3,882/MT in 2023). Currently, CPO contributes 6.63% to total exports in Feb-24. Looking ahead, export growth is expected to decline further due to moderating commodity prices, particularly coal, and a global economic slowdown. Taking into account these factors, we forecast that export growth will decelerate to -1.5% YoY in FY24 from 1.3% YoY in FY23.


Consumption and capital goods drive import performance

Total imports amounted to USD18.44 bn in Feb-24 (-0.29% MoM, but +15.84% YoY), reaching the lowest level since Sep-23. Additionally, the annual import growth rate surpassed both our forecast and consensus estimates, standing at +11.27% and +10.27% respectively. Breaking down the specifics, OG imports advanced by +10.42% MoM and +23.82% YoY to USD2.98 bn. On the other hand, NOG imports inched down by -2.12% MoM but +14.42% YoY to USD15.46 bn. In terms of the broader economy categories, consumption and capital goods rose by +5.11% MoM and +0.44% MoM to USD1.86 bn and USD3.27 bn, respectively. Meanwhile, intermediate goods contracted by -1.18% MoM to USD13.30 bn. Moving forward, we anticipate a rise in imports this month, driven by heightened demand for consumer goods during Ramadan.


Forex reserves decrease to the smalles level since Nov-23

In line with the performance of the trade surplus, Bank Indonesia (BI) reported that Indonesia's foreign exchange (forex) reserves fell to USD144.0 bn in Feb-24 (from USD145.1 bn in Jan-24), the lowest level since Nov-23. This decline is attributed to the maturing sovereign global bonds amounting to USD0.47 bn. Nevertheless, Indonesia's foreign exchange reserves remain robust, equivalent to financing 6.5 months of imports or 6.3 months of imports and debt payments, exceeding the international adequacy standard of 3 months of imports. The relatively high level of forex reserves is consistent with the stability of the Rupiah, which appreciated by 0.41% MoM to Rp15,715/USD in Feb-24.  This appreciation is driven by capital inflows into the stock market amounting to Rp10.1 tn (vs capital outflow from bond market at Rp6.4 tn). Looking ahead, we anticipate that the Rupiah will appreciate to Rp15,200/USD, propelled by expectations of a Fed Fund Rate cut in 2H24.