Trade surplus records the highest level since March
According to Statistics Indonesia (BPS), Indonesia's trade surplus grew by 1.94% MoM and 2.01% YoY to USD4.42 bn in Nov-24, exceeding our forecast of USD2.38 bn and the consensus estimate of USD2.29 bn. This marks the highest trade surplus since Mar-24 and continues Indonesia's 55-month streak of trade surpluses since May-20. The November surplus was primarily driven by a USD5.67 bn surplus in non-oil and gas (NOG) exports, which offset a USD1.25 bn deficit in oil and gas (OG) trade. Cumulatively, trade surplus narrowed to USD28.85 bn in 11M24 (vs. USD33.60 bn in 11M23) driven by lower NoG surplus. Looking ahead, global economic uncertainty poses challenges for Indonesia's export performance, with risks including escalating geopolitical tensions in the Middle East, a weakening economic outlook for China, and potential protectionist trade policies under Trump administration. However, we anticipate major central banks will cut interest rates next year to support their economic growth. Additionally, the government has committed to stop importing key agricultural commodities in 2025, such as rice for consumption, sugar for consumption, corn for animal feed, and salt for consumption. Considering these factors, we project Indonesia's current account deficit to reach -0.5% of GDP in 2024 and -0.4% of GDP in 2025.
Weak India demand and CPO underperformance bring export down
In Nov-24, Indonesia’s total exports amounted to USD24.01 bn (-1.70% MoM but +9.14% YoY). This performance exceeded our projected annual growth and consensus estimate of +6.86% YoY and +5.99% YoY. Breaking down, OG exports stood at USD1.33 bn (-2.10% MoM but +2.73% YoY), while NOG exports reached USD22.69 bn (-1.67% MoM; +9.54% YoY). The decline in total exports was largely attributed to the underperformance of animal/vegetable fats and oils (HS15), primarily crude palm oil (CPO), which fell by -10% MoM to USD2.71 bn. We think the decline in CPO exports was driven by CPO prices hike by 9.12% MoM to MYR5,238/ton. This price hike likely made alternative substitutes, such as sunflower seed oil and soybean oil, more competitive. Additionally, India recorded the steepest monthly contraction among Indonesia’s export destinations, with a -21.85% MoM decline to USD1.58 bn, aligning with India’s weakening manufacturing PMI, which fell from 57.5 to 56.5 in October. On a cumulative basis, total exports increased by +2.06% YoY to USD241.25 bn in 11M24. China remained Indonesia’s largest export destination, with exports totaling USD56.56 bn, accounting for 23.99% of total exports.
Import declines align with manufacturing contraction
Total imports reached to USD19.59 bn (-10.71% MoM but + 0.01% YoY) in Nov-24, falling both our forecast of +7.86% YoY and the consensus estimate of +6.15% YoY. OG imports dropped sharply by -29.88% MoM and -26.32% YoY to USD2.57 bn, while NOG imports reached USD17.02 bn (-6.87% MoM but +5.71% YoY). All import category declined during the month. Consumer goods imports decreased by -0.84% MoM to USD2.02 bn, intermediate goods imports fell by -11.97% MoM to USD14.02 bn, and capital goods imports contracted by -10.77% MoM to USD3.55 bn. The weak import performance is primarily attributed to a decline in oil prices and a contraction in manufacturing activity. The price of WTI crude oil fell by -1.87% MoM and -10.52% YoY to USD68.0/bbl in Nov-24. Meanwhile, Indonesia’s manufacturing PMI stood at 49.6, marking the fifth consecutive month of contraction in manufacturing activity.
Forex reserves dip amid trade surplus as rupiah faces pressure
Indonesia’s foreign exchange reserves declined to USD150.2 bn in Nov-24, down from October’s record high of USD151.2 bn, despite an increase in the trade surplus. This decline was primarily driven by the government’s external debt payments. However, the current level of reserves remains robust, providing coverage for 6.5 months of imports or 6.3 months of imports combined with government foreign debt obligations, significantly exceeding the internationally recognized adequacy standard of three months of imports. In line with the decline in foreign exchange reserves, the Rupiah depreciated by 0.91% MoM to Rp15,848/USD in Nov-24. This depreciation is attributed to capital outflows from the equity market (-USD1.1 bn) and the bond market (-USD0.8 bn), which were driven by heightened investor concerns following Trump’s victory in the U.S. presidential election. Worries about potential protectionist policies under Trump’s presidency, persistent inflation, and reduced expectations for aggressive Federal Reserve rate cuts further pressured the Rupiah. Looking ahead, we expect the Federal Reserve to cut its rate by 25 bps to 4.5% this month, followed by an additional 50 bps reduction to 4.0% in 2025. On the domestic front, Bank Indonesia (BI) is anticipated to maintain its policy rate at 6.00% this month but is projected to cut rates by 50 bps to 5.50% in 2025. With the wider interest rate spread, we forecast the Rupiah to strengthen to Rp15,700/USD by year-end 2024, with an average exchange rate of Rp15,850/USD for the full year.
