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ECONOMIC UPDATE - External trade review - Trade surplus narrows amidst Rupiah depreciation

Trade surplus for 48 months in a row

According to Statistics Indonesia (BPS), Indonesia's trade surplus slightly decreased by -1.02% MoM and -0.38% YoY to USD3.56 bn in Apr-24, (vs. USD4.57 bn in Mar-24 and USD3.94 bn in Apr-23). However, the trade surplus was higher than both our forecast of USD3.19 bn and the consensus estimate of USD3.14 bn. Moreover, Indonesia's foreign trade has shown a positive trend since May 2020, achieving a trade surplus for 48 consecutive months. This surplus was primarily driven by a USD5.17 bn surplus in non-oil and gas (NoG) exports, despite a deficit of -USD1.61 bn in oil and gas (OG) exports. Cumulatively, the trade surplus declined to USD10.97 bn in 4M24, down from USD16.05 bn in 4M23. Looking forward, we expect export performance to decline further due to falling commodity prices and a global economic slowdown. On the other hand, we anticipate an increase in imports of consumer goods and raw materials, driven by strong household consumption and growth in the manufacturing sector. As a result, we predict the trade surplus will continue to narrow. We also project that the current account deficit could widen to 0.4% of GDP in 2024.


Export shrinks during Eid-al-Fitr season

Total exports amounted to USD19.62 bn in Apr-24 (-12.97% MoM but +1.72% YoY. This figure was below both our projected estimate of +6.05% YoY and the consensus estimate of +3.25% YoY. Cumulatively, total exports decreased by -5.12% YoY to USD81.92 bn in 4M24.  Breaking down in the numbers, exports of oil and gas (OG) rose by +5.03% MoM and +7.24% YoY to USD1.35 bn in Apr-24, while non-oil and gas (NOG) exports achieved USD18.27 bn in Apr-24 (-14.06% MoM but +1.36% YoY). Notably, China remained the primary destination for NOG exports at USD4.28 bn (-7.38% MoM, but -9.83% YoY), followed by the India at USD1.81 bn (+2.03% MoM, and +17.52% YoY), and United States at USD1.75 bn (-19.89% MoM, and +11.45% YoY). Additionally, China's economy shows signs of improvement. The Caixin China General Manufacturing PMI increased to 51.4 in April 2024 from 51.1 in the previous month, beating consensus estimates of 51. It was the sixth straight month of growth in factory activity and the fastest pace since February 2023. In terms of a main commodity basis, coal’s export slightly increased by 1.84% MoM to USD2.61 bn (contributing to 14.27% of total export), while Iron and Steel export inched up by +1.91% MoM to USD2.17 bn (contributing to 11.88% of total export). On the other hand, CPO export decreased by -10.49% MoM to USD1.39 bn (contributing to 7.63% of total export). We attribute the commodity export performance to price changes. Coal’s price increased by 10.18%MoM to USD142.45/ton in Apr-24, however CPO’s price plunged by -10.71% MoM to MYR3862/ton in Apr-24. Additionally, the decrease in monthly exports was driven by fewer working days in April due to the Eid-al-Fitr holiday. Looking ahead, we expect monthly export growth to rebound this month due to more working days.


Import hits the lowest level since Apr-23

Total imports reached USD16.06 bn in Apr-24 (-10.6% MoM but +4.62% YoY), reaching the lowest level since Apr-23. Additionally, the annual import growth rate was lower than both our projection and consensus estimates of +12.50%YoY and +7.70%YoY respectively. Breaking down the specifics, OG imports amounted to USD2.96 bn (-11.01% MoM but +0.18% YoY). Meanwhile, NOG imports amounted to USD13.10 bn (-10.51% MoM but +5.68% YoY. In terms of the broader economy, Consumption and Intermediate goods decreased by -23.96% MoM and -9.28% MoM to USD1.41 bn and USD11.98 bn, respectively. Meanwhile, Capital goods plunged by -8.10% MoM to USD2.67 bn. Looking ahead, The government needs to prepare for the possibility of rising crude oil prices in the future, especially if the Middle East crisis gets worse. Tensions have increased after Israel attacked the city of Rafah earlier this month. Furthermore, these geopolitical tensions and reductions in OPEC+ supply have already driven WTI oil prices up by 9% YtD to USD78.0/bbl.


Forex reserves decline amidst global uncertainty

In line with the trade surplus performance, Bank Indonesia (BI) reported that Indonesia's foreign exchange (forex) reserves fell to USD136.2 bn in Apr-24 from USD140.4 bn in Mar-24. This marks the lowest level since Oct-23. This decline is attributed to the maturing sovereign global bonds and the need for Rupiah stabilization amidst financial uncertainty. Nevertheless, Indonesia's foreign exchange reserves remain robust, equivalent to financing 6.1 months of imports or 6.0 months of imports and debt payments, surpassing the international adequacy standard of 3 months of imports. The forex reserves level is align with the  Rupiah performance, which depreciated by -2.54% MoM to Rp16,259/USD in Apr-24. This depreciation is driven by an estimated -USD2.6 bn in capital outflows (-1.1 bn from equities, -1.0 bn from government bonds, and 0.45 bn from SRBI). Additionally, this capital outflow is attributed to escalating geopolitical tensions between Israel and Iran and the "higher-for-longer" expectations from the Fed due to better-than-expected US economic data. Anticipating further depreciation, BI raised the BI-rate by 25bps to 6.25% to attract the capital inflow. Looking ahead, we expect forex reserves and Rupiah will rebound this month due to potential capital inflows. As of mid May, capital inflow was recorded at USD7.1 bn, bringing Rupiah to appreciate by 1.35% MtD to Rp16,040/USD. We forecast Rupiah to further appreciate to Rp15,506/USD at end 2024 on weaker USD after expected Fed rate cut in 2H24.