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ECONOMIC UPDATE - External trade review - Persistent surplus



Trade performance beats expectations, surplus for five months in a row 

Trade surplus inched up from USD2.37 bn in Aug-20 to USD2.44 bn in Sep-20. The surplus is higher than our and consensus estimates at USD1.83 bn and USD2.08 bn, respectively. Indonesia has registered a trade surplus for five months in a row. The bright side of the data release was the export almost catched up with last year export value. The export increased by 6.97% MoM (-0.51% YoY) or recorded USD14.01 bn of total export. Besides, import increased by 7.71% MoM (-18.9% YoY) resulting USD11.57 bn of total import. The global economic recovery in several countries, reflected in public mobility, the Purchasing Managers Index (PMI) for manufacturing and services as well as consumer confidence in the US and EU triggered the better trade performance in Sep-20. The relatively high Baltic Dry Index (BDI) in last 3 months may sustain the trade surplus that enables us to expect better trade performance in Oct-20. 


Depends on other countries’ recovery

Export increased by 6.97% MoM in Sep-20. Price hike on some important commodities such as palm oil and rubber supported the higher export where it increased by 4.97% MoM, 9.07% MoM, followed by other important commodities such as chocolate, palm kernel oil and copper. Interestingly, gold slipped down by 2.37% MoM. Besides, ICP fell by 10% MoM to USD37.4/barrel. Based on its sector, all of sector grew positively (OG, agriculture and manufacture) in monthly basis except mining sector due to the combination of low demand of Indonesia mining products and the lower price of the important mining commodities such as coal where it slipped by 17% YoY. The highest growth of non-OG sector was Articles of Iron/Steel (HS 72) where it grew by 32.5% MoM to USD266 mn. The biggest contributor was still Animal/Vegetable Fats and Oil (HS 15) where it grew by 13.1% to USD1.72 bn and contributed 12.5% to total export. 


Higher import, expecting better domestic industries

Import increased by 7.71% MoM in Sep-20. This indicated the growing domestic industries. It is true that IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) slowed down from 50.8 in Aug-20 to 47.2 in Sep-20. However, the lower index was triggered by the reimposed large-scale social restriction (PSBB) in the second week of Sep-20 in Jakarta. All of imported goods based on its usage increased in monthly basis except consumption goods; consumption goods (-6.12%), intermediary goods (7.23%) and capital goods (19.0%). Based on the goods classification, Machine and Mechanical Equipment (HS 84) was the highest contributor of import where it increased by 6.28% MoM to USD1.76 bn as it contributed 17.1% of total import. 


Room for rate cut

Looking ahead, export and import performance should gradually improve as the global recovery seems promising and amid a supportive base effect, although the outlook is highly uncertain due to the rising Covid-19 cases. Relatively high trade surplus in Sep-20, low inflation at 1.42% YoY in Sep-20 and other indicators provide room for BI to trim policy rates further. However, we still expect that BI is unlikely to cut BI-7DRRR 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.