ECONOMIC UPDATE - External trade review - Narrower surplus, but it’s still large

 

 

Expecting thinner surplus

Trade surplus narrowed from USD3.26 bn in Jul-20 to USD2.37 bn in Aug-20. The surplus is lower than our estimation at USD2.94 bn but higher than consensus estimates at USD2.17 bn. This should send positive sentiment to market and may lead to rupiah strengthening but we do not expect a quick rebound. The export decreased at 4.62% MoM (8.36% YoY) or recorded USD13.07 bn of total export. Besides, import increased by 2.65% MoM (-24.2% YoY) resulting USD10.74 bn of total import. The surplus narrowed as exports to most of its trading partners fell. Besides, the deceleration may happen due to the still-weak global demand, reflected by the drop at 7.17.2% MoM on the average of Baltic Dry Index (BDI) in Aug-20. Unfortunately, BDI remains weaker until today where it slips by 11.2% to 1,346 from the average BDI at 1,516 in Aug-20. This may indicate the thinner trade surplus around USD2 bn for Sep-20 record.

 

3-month consistent growth pauses

After its 3-month consistent growth of export from May-20 in monthly basis, the export fell by 4.62% MoM. For non-OG commodities, some commodities showed price increases as well such as crude palm oil 9.5% MoM (29.7% YoY), rubber 17.8% MoM (13.5% YoY), gold 6.6% MoM (31.2% YoY) and other important commodities. The highest growth of non-OG sector was Articles of Iron/Steel (HS 73) where it grew by 84.6% MoM to USD67.5 mn. The biggest contributor was still Animal/Vegetable Fats and Oil (HS 15) where it slipped by 9.55% to USD1.51 bn and contributed 12.4% to total export. 

 

Lesser contraction in import

Import increased by 2.65% MoM in Aug-20. This indicated the growing domestic industries. Besides, IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) showed a positive signal as well where it jumped from 46.9 in Jul-20 to 50.8 in Aug-20. The level above 50 indicates an expansionary path or improvement on manufacturing firms.  All of imported goods based on its usage increased in monthly basis except capital goods, they were consumption goods (7.31%), intermediary goods (5.0%) and capital goods (-8.81%). Based on the goods classification, Machine and Mechanical Equipment (HS 84) was the highest contributor of import where it slipped by 1.71% MoM to USD1.7 bn as it contributed 17.2% of total import. 

 

Room for rate cut

Low inflation at 1.32% YoY in Aug-20, relatively high trade surplus in Aug-20 and other indicators provide room for BI to trim policy rates further. However, we still expect BI is unlikely to cut BI-7DRRR on 16-17^th August meeting as the domestic economic recovery especially household’s purchasing power continues at slow pace. Thus, we see BI will keep the rate unchanged at 4% in a move to safeguard the country’s macroeconomic stability amid recessionary risks from the pandemic.