Indonesia: June 2018 trade

HIGHLIGHTS

June 2018 trade

• Total trade growth eased in June on the back of fewer working days, while moderating import growth brought the trade balance back to a surplus of US$1.7bn.
• Export growth was supported by stronger volume growth, whereas price effect was the key driver of import expansion.
• With a quarterly trade deficit of US$1.3bn, we expect current account deficit to widen to US$6.7bn, or 2.6% of GDP in 2Q18.
• We project 2Q18 GDP growth to be a tad higher at 5.2% yoy, supported by positive contribution in net export volumes and stronger consumption.

Indonesia posted a trade surplus of US$1.7bn in June
Indonesia’s trade balance swung back to a surplus of US$1.7bn in June (CIMB forecast: +US$546m; Bloomberg consensus: +US$968m; May: -US$1.5bn) on the back of much subdued gross import growth at +12.7% yoy (CIMB forecast: +23.6% yoy; Bloomberg consensus: +29.1% yoy; May: +28.2% yoy). Gross exports grew +11.5% yoy during the month (CIMB: +10.6% yoy; Bloomberg consensus: +15.6% yoy; May: +13.1% yoy).

Weaker trade expansion due to a shorter working month…
In contrast to the Lebaran month in 2012-2017 which saw trade declining, total trade activity continued to expand in June 2018, on the back of resilient global trade activity and recovering domestic demand. The pace of expansion nonetheless eased (+12.0% yoy vs. +20.5% yoy in May) due to a shorter working month, as the government declared extra holidays surrounding the Lebaran festive season. There were 20% yoy fewer working days in June 2018 (12 vs. 15 in June 2017).

… but export volume growth quickened
Nonetheless, export volume growth accelerated despite fewer working days (+24.1% yoy in June vs +17.5% yoy in May). The acceleration may have been partly supported by a weaker currency, which improves export competitiveness, whereas higher O&G production in the country lifted O&G exports. On the flip side, the import growth was mainly led by price effects (+21.8% yoy in June vs. +17.0% yoy in May), compensating for the decline in import volume (-7.5% yoy vs. +9.7% yoy in May).

Imports of capital goods supported by delivery of train sets
By category, imports of consumption goods took a backseat at the end of 2Q18 after two months of robust growth (-9.5% yoy in June vs. +34.3% yoy in May), whereas imports of raw materials rose 14.6% yoy (+24.7% yoy in May). Imports of capital goods sustained their double-digit growth (+19.9% yoy vs. +43.1% yoy in May) due to the arrival of six train cars from South Korea for Jakarta LRT.

Trade deficit to translate into higher current account deficit
The large trade surplus in June was not sufficient to offset the deficit in Apr-May, resulting in a quarterly trade deficit of US$1.3bn in 2Q18 (+US$314m in 1Q18). Hence, we expect the current account deficit to widen to US$6.7bn, or 2.6% of GDP in 2Q18 (vs. deficit of US$5.5bn, or 2.1% of GDP in 1Q18). Meanwhile, net export volumes expanded 19.7% yoy in 2Q18 (+14.8% yoy in 1Q18), pointing to a potential positive contribution to GDP growth. Coupled with stronger retail and auto sales, we expect 2Q18 GDP growth to accelerate to 5.2% yoy. The 2Q18 GDP growth data will be released on 6 Aug 2018, and balance of payment on 10 Aug 2018.

Originally published by CIMB Research and Economics on 16 July 2018.