Trade surplus narrows on higher OG deficit
According to Statistics Indonesia (BPS), Indonesia's trade surplus fell by -0.54% MoM and -1.06% YoY to USD2.39 bn in Jun-24 (vs. USD2.93 bn in May-24 and USD3.45 bn in Jun-23). Moreover, this figure was below both our forecast of USD2.91 bn and the consensus estimate of USD2.90 bn. This is the smallest trade surplus since February. Nonetheless, Indonesia's foreign trade has been on an upward trend since May-20, posting a trade surplus for 50 consecutive months. The trade surplus was mainly driven by a USD4.43 bn surplus in non-oil and gas (NoG) exports, which offset a USD2.04 bn deficit in oil and gas (OG) exports. On a monthly basis, both surplus NoG exports and deficit OG exports rose by 4.11% MoM and 53.42% MoM, respectively. The higher deficit in OG exports can be attributed to lower oil prices. Indonesian Crude Price (ICP) decreased by USD 0.47 to USD 79.31/bbl in Jun-24. Cumulatively, the trade surplus fell to USD15.45 bn in 1H24 from USD19.91 bn in 1H23. Looking forward, we expect a further decline in export performance due to moderating commodity prices and a global economic slowdown. On the other hand, we expect imports of consumer goods to increase, driven by several domestic events. Towards the end of the year, Indonesia will hold regional elections, and the Christmas and New Year holidays could escalate domestic activities. As a result, we expect the trade surplus to narrow further. In addition, we expect the current account deficit to widen from 0.1% of GDP in 2023 to 0.4% of GDP in 2024.
Commodity prices and China’s demand drag down export
Total exports amounted to USD20.84 bn in Jun-24 (-6.65% MoM but +1.17% YoY), reaching the lowest level since March. Furthermore, this yearly growth rate was below both our projected estimate of +6.20% YoY and consensus estimate of 4.81% YoY. Cumulatively, total exports decreased by -2.76% YoY to USD128.64 bn in 1H24. Breaking down in the numbers, exports of OG decreased by -13.24% MoM and -2.26% YoY to USD1.23 bn in Jun-24, while NOG exports amounted to USD19.61 bn in Jun-24 (-6.20% MoM and +1.40% YoY). We attribute the lower total exports to the performance of major commodity exports. Coal exports decreased by -0.36% MoM to USD2.49 bn (contributing to 12.71% of total export) while, Iron and Steel exports dipped by -4.32% MoM to USD2.10 bn (contributing to 10.71% of total exports). The decline in coal export performance is attributed to its price, which moderated by -6.04% MoM to USD133.84/Ton in Jun-24. Furthermore, export to China decreased by -1.72%MoM to USD4.65 bn. We attribute this deceleration to lower demand from China. China’s Retail sales index decelerated to 2.0% YoY in Jun-24 from 3.7% YoY in May-24. Looking ahead, we expect monthly export growth potentially to increase this month driven by higher working day.
Decrease in imports driven by NOG performance
Total imports reached USD18.45 bn in Jun-24 (-4.89% MoM but +7.58% YoY). Moreover, the annual import growth rate was below both our forecast of +10.60% YoY and the consensus estimate of +8.15% YoY. Breaking down the details, OG imports amounted to USD 3.27 bn (+19.01% MoM and +47.17% YoY). Meanwhile, NOG imports amounted to USD 15.18 bn (-8.83% MoM but +1.69% YoY). In terms of the broader economy, consumer goods increased by +2.48% MoM to USD1.78 bn. Meanwhile, intermediate and capital goods declined by -3.41% MoM and -14.51% MoM to USD 13.67 bn and USD 3.00 bn, respectively. The increase in monthly OG imports is mainly due to lower oil prices. Conversely, the decline in monthly NOG imports is attributed to the depreciation of the rupiah. In June, rupiah depreciated slightly by 0.71% MoM to Rp16,375/USD.
Forex reserves hit the highest level since March
Foreign exchange reserves in Indonesia rose to USD140.2 bn in Jun-24, up from USD139 bn the previous month, in line with the trade surplus. This is the highest level since March, bolstered by increased tax and service revenues and government foreign loan withdrawals. These reserves are sufficient to cover 6.3 months of imports or 6.1 months of imports and servicing the government's external debt, far exceeding the international adequacy benchmark of 3 months. Additionally, capital inflow from government bonds was recorded at USD117.4 bn, while capital outflows from stocks amounted to USD 91.0 bn. The Governor of Bank Indonesia is optimistic that capital inflow will continue in the 2H24, stabilizing and strengthening the rupiah to around Rp15,700 to Rp16,100/USD by the end of 2024. He highlighted four factors driving the capital inflow: the reduction in the Federal Funds Rate (FFR), attractive investment portfolio returns, managed inflation, and strong economic growth. Looking ahead, we expect rupiah to be around Rp15,950/USD by the end of 2024, consistent with BI's projection. Additionally, the political situation is anticipated to significantly boost the rupiah. The US Presidential election in the second half of 2024 might weaken the dollar due to political uncertainty, leading investors to take a wait and see approach. In contrast, the inauguration of Indonesia's President and the announcement of the new cabinet will enhance political certainty and strengthen the rupiah.
