ECONOMIC UPDATE - External trade review - Trade deficit surges to seven-month high



Biggest trade deficit in seven months 

Way deeper than it was expected, trade deficit in Nov-19 came at USD1.33 bn or the widest since Apr-19. It was higher than our and consensus estimate at USD279.9 mn and USD105.0 mn. Even though the deficit in Apr-19 was ultimately higher at USD2.5 bn, we need to be careful for what coming in Dec-19 as this is the last month to improve the trade performance for 2019, where there is not much to do though. The trade balance swung back into deficit as exports dropped by -6.2% MoM from USD14.9 bn to USD14.0 bn while imports grew at 3.9% MoM from USD14.8 bn to USD15.3 bn. The increase in imports of consumer goods surged approaching year-end holidays whereas exports shrunk for 13rd straight month since Nov-18.


Non-OG sector does not celebrate peak season

Even exports volume had positive growth as much as 9.7% YoY, export still recorded a negative growth in value this period. It is the sluggish export product price that made overall export went down as its aggregate price declined by -14.0% YoY in Nov-19. Seemed the vibe of peak season did not come to non-OG sector as its volume grew by 10.62% YoY but the price fell by -13.8% YoY. In line, it had a negative growth by -7.92% MoM. The price fall hit some major non-OG commodities such as coal, nickel, gold and others. This is important as we estimated the increase of coal export amid the increase demand of it on winter and the avoidance of its imminent export ban will help the trade performance, but the value from the mineral fuels (consists of coal) decreased by -7.3% MoM or -13.1% YoY and generated USD1.8 bn of exports. Despite the weaker performance, mineral fuels commodity was still the number one contributor of exports by posting 14.5% share to total export from Jan-Nov 2019. The largest increase in non-OG sector was from animal/vegetable fats and oils by USD131.2 mn or grew 8.7% MoM. Meanwhile, the biggest fell was from ore, slag and metal ash by USD239.6 mn, up to -46.8% MoM. In contrast with the decrease of non-OG export, the OG export grew by 20.7% MoM to USD1.1 bn although in yearly basis it posted -15.8% YoY of growth where the biggest contribution of OG export came from gas and followed by oil product as much as 5.3% and 1.2% share to total export in 2019.


Significant hike in consumer good imports

The underlooked imports in yearly basis has created a worsened trade deficit.  However, if we take a look deeper on the use of the imports, the consumer goods imports was recorded at USD14.8 bn with the highest growth at 16.1% MoM compared to the raw/intermediate and capital goods imports. This showed higher demand among people ahead of year-end festivities. Imported fruits such as apple and orange were recorded as the highest contributor to the high growth of consumption good imports as it grew 37.6% MoM. From the increase of raw/intermediary goods by 2.6% MoM, they were precious metal and jewelry that contributed the most. Meanwhile, notebook, crane and radio equipment contributed the increase of capital goods import where it grew by 2.5% MoM. Based on the goods classification, mineral fuels import displayed the largest growth by 89.1% MoM although in yearly basis it decreased by -9.6% YoY. The top imports came from machine and mechanical equipment where it recorded USD2.3 bn of imports with 2.7% MoM of growth. 


Wider deficit could lead trend of Rupiah depreciation in short run

The unexpected trade deficit may bring the unwanted wider trade deficit for YE 2019. If we still maintain our view on trade deficit in Dec-19 at USD618.2 mn, for the overall 2019, we will have trade deficit on USD3.7 bn where the growth of export and import will be at -7.0% YoY and -8.7% YoY. It seems from the trade performance, the current account deficit (CAD) in 4Q19 will be worse than 3Q19. Thus, we still maintain our view of CAD at 3.0% of GDP. Widening CAD may lead to a weaker Rupiah so we still maintain our view on Rupiah as well on Rp14,190 against US Dollar in the YE 2019.