ECONOMIC UPDATE - External trade review - Three consecutive monthly trade deficit

ECONOMIC UPDATE - External trade review

Three consecutive monthly trade deficit

 

Interesting data from export volume jump

Statistics office (BPS) recorded that Indonesia exports growth was getting better at 11.76% YoY (-3.14% MoM) to USD 1.39 bn in February. Oil and gas sector posted higher growth at 16.09% YoY (5.08% MoM) while non oil and gas sector had 11.3% YoY (-3.96% MoM) growth in February. Interesting data came from the imports volume growth which jumped 22.28% YoY (-4.78% MoM) but the volume growth was not followed by export price which declined -8.6% YoY in February. We see that the jump in export growth in line with jump in ore, crust and metal sector export growth and tins export as the result of mineral export relaxation rules that was implemented in 2017. However, the decline in some Indonesia’s exports products (see exhibit 1) which was led by CPO (monthly average price: -22.5% YoY) made the export value growth was only 11.76% YoY. February performance brought YTD export to USD 28.6 bn (YTD Feb 2017: USD 26.0 bn)

 

Coal price is usually trending down in 2^nd quarter

One of Indonesia export growth driver is the growth of coal price which reached 28.5% YoY in February. However, coal price is usually trending down in starting March until 2^nd quarter due to lower seasonal demand . Exhibit 4 showed that the coal price is always trending down in 2^nd quarter from 2012 – 2017, except for 2016 as the coal price was already in low base. In the 2^nd quarter, demand for coal, especially from power plant, decreases as winter ends. Lower demand brings the price goes down in 2^nd quarter before it started to hike up in 3Q17 and will peaked in 1^st quarter of following year. Our coal price expectation in 2018 is at USD 90/ton. We expect that coal price will move to below USD 90/ton in 2Q18 before it will gradually rebound in 3Q18 to above USD 90/ton. So there is no need to worry when the coal price started to trending down below USD 100/ton.

 

Higher confidence of manufacturers bring import growth stayed strong

Import was consistent to post significant growth since 4Q17 until at least February 2018 when its growth was recorded at 25.18% YoY (-7.16% MoM). Consumption goods growth was the highest as it posted 55.3% YoY growth, implying that consumption sector was getting better. Furthermore, capital goods imports also gave a good result with 32.2% YoY growth, denoting that we will see another round of strong investment growth in 2018. Furthermore, the import result was in line with February PMI data at 51.4 which showed better manufacture performance. IHS Markit stated that total new orders and output both rising for the first time since last November. Better performance of manufacture stimulated positive job growth for the first time in nearly one-half year. Through these data, we are confidence that domestic demand will recover and consumption growth may reach 5.1% in 2018. Good February performance brought YTD import at USD 29.5 bn (YTD Feb 2017: USD 23.3 bn)

 

Three month of deficit in a row, maintain CAD forecast at 2.1% of GDP

The negative side of the import performance was it created another trade deficit in February at USD -116 mn, making the overall trade deficit in 2018 at USD -872 mn. We maintain our view of 2.1% current account deficit (CAD) as we see that import performance will remain strong in 2018.