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ECONOMIC UPDATE - External trade review - Lower imports ahead



14th straight month of surplus

Statistics Indonesia reported the trade surplus at USD1.32 bn in Jun-21. The surplus is lower than our estimate and consensus at USD1.34 bn and USD2.23 bn, respectively. The surplus slowed down compared to two previous trade surpluses. The lower trade surplus was due to the high import value at USD17.2 bn where it increased by 21% MoM (60.1% YoY). The high imports were supported by the expanding domestic manufacture in Jun-21. Besides, the export increased by 9.52% MoM (54.5% YoY) or recorded USD18.5 bn of total export. Commodity price surge still played significant role as well as the low-base effect due to the impact of the pandemic last year on the trade performance. However, during the partial lockdown (Emergency PPKM), the Covid-19 cases surge and also some restrictions from other countries to visit Indonesia, we see the trade performance will be harmed in Jul-21, bringing the lower imports ahead.


Commodity prices surge

Lot of important commodities showed higher prices on monthly and yearly basis such as ICP, coal, nickel and tin where they increased by 91.5% YoY, 148.9% YoY, 41.3% YoY and 93% YoY respectively. The prices hikes on these commodities played a significant role to boost the exports performance. Based on its sector, all of sector (OG, agriculture, manufacture and mining) increased in monthly and yearly basis where the highest growth in monthly basis was agriculture at 33% MoM (15.2% YoY) due to the growth of medicinal plants and herbs exports. From the selected non-OG sector, the biggest contributor (14.6% of total export) came from Animal and Vegetable Fats (HS 15) where it decreased by 30.8% MoM to USD1.89 bn. From the top export commodities, the highest growth came from Ores, Slag and Ash (HS 26) at 35.4% MoM to USD574.6 mn. 


Contribution of domestic manufacture

IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) slipped from 55.3 in May-21 to 53.5 in Jun-21. The index moved above the 50-threshold, signifying the economic expansion. The excellent performance of manufacturing industry sector was reflected in the export value of the manufacturing industry, which was recorded at USD66.70 bn in Jan-May 2021, increasing by 30.5% YoY. Besides, the manufacturing sector is significant as the import of raw material/intermediary goods was 75.9% of total import. All of imported goods based on the usage increase: consumption goods (16.9% MoM), intermediary goods (19.2% MoM) and capital goods (35% MoM). From the selected non-OG sector, the biggest contributor (14.6% of total import) came from Machinery (HS 85) where it increased by 34.7% MoM to USD2.29 bn. For the highest growth, it came from Iron and Steel (HS 72) at 200.7% MoM to USD1.14 bn.


Expecting lower imports

However, at the end of Jun-21, the trend of Baltic Dry index (BDI) has been showing slower pace until today. Additionally, the Emergency PPKM until July, 20th 2021 (that we expect the period will be extended) hinders the economic recovery for short term as the Covid-19 cases are increasing. However, we need to realize that larger testing (125,000 per day, 108% increase compared to Jun-21 level) has led to higher daily case discovery. From our top trade partner, China's economic growth in 2Q21 slowed although it was still quite resilient at 7.9% YoY. However, their household incomes are not growing as fast as the economy, which will continue to limit how much consumption can recover. Thus, we see the trade performance in Jul-21 will be challenging with the significant decrease in imports, resulting a thinner trade surplus. 


Expecting unchanged policy rate

The thinner trade surplus in Jun-21 was actually good as it indicated the growing domestic manufacturing industry while the export was doing well as well. In 1H21, the trade goods recorded a sufficient surplus at USD11.9 bn, as exports rose by 34.8% YoY while imports advanced at a softer 28.4% YoY. However, we see that Bank Indonesia (BI) will hold the BI-7DRRR at 3.5% in the next BoG Meeting in July, 21st – 22nd 2021 in order to stay competitive yet accommodative towards the market.