December's trade surplus narrow to the lowest level since July
According to Statistics Indonesia (BPS), Indonesia’s trade surplus fell sharply by -48.7% MoM and -31.9% YoY to USD2.24 bn in Dec-24, missing our forecast of USD2.42 bn and the consensus estimate of USD3.79 bn. This marks the lowest trade surplus since Jul-24 but extends Indonesia’s streak of 56 consecutive months of trade surpluses since May-20. The December figure was primarily supported by a USD4.00 bn surplus in non-oil and gas (NOG) trade, which offset a USD1.76 bn deficit in oil and gas (OG). On an annual basis, the cumulative trade surplus narrowed to USD31.04 bn for FY24, down from USD36.89 bn in FY23. This decline was largely driven by a lower NOG surplus, which stood at USD56.79 bn in FY24 compared to USD51.44 bn in FY23. Looking ahead, multiple factors could challenge Indonesia’s trade performance, including escalating geopolitical tensions in the Middle East and the Russia-Ukraine conflict, weakening economic conditions in China, and anticipated protectionist trade policies under Trump’s administration. Additionally, the Federal Reserve’s defensive stance on interest rates amid persistent inflationary pressures is likely to slow the global economic recovery. The Fed recently adjusted its 2025 interest rate cut outlook from 100 bps to 50 bps, potentially dampening the recovery of the US manufacturing sector and reducing demand for Indonesian commodities. Considering these developments, we project Indonesia’s current account deficit to widen to -0.5% of GDP in 2024 and -0.7% of GDP in 2025.
Weaker demand from China drags down Indonesia’s exports
Indonesia’s total exports amounted to USD23.46 bn in Dec-24 (-2.24% MoM, +4.78% YoY). This performance fell short of our projected annual growth (+5.30% YoY) and the consensus estimate (+7.29% YoY).Breaking down the data, OG exports stood at USD1.54 bn (+17.12% MoM, +4.09% YoY), while NOG exports reached USD21.92 bn (-3.36% MoM, +4.83% YoY). The monthly export contraction is primarily attributed to weaker demand from China, where exports decreased by -7.27% MoM to USD5.79 bn in Dec-24. This aligns with China’s Caixin Manufacturing PMI, which declined from 51.5 in Nov-24 to 50.5 in Dec-24. On a cumulative basis, total exports increased by +2.29% YoY to USD264.70 bn in FY24. NOG exports rose +2.46% YoY to USD248.83 bn, driven by higher commodity prices, particularly CPO. Conversely, OG exports slightly declined by -0.28% YoY to USD15.87 bn due to lower oil and gas lifting. China remained Indonesia’s largest export destination, accounting for 24.20% of total exports, although exports to China declined by -3.38% YoY to USD60.22 bn in FY24.
Indonesia’s imports surge amid year-end consumption boost
Total imports reached USD21.22 bn in Dec-24(+8.10% MoM and +11.07% YoY), exceeding both our forecast of +10.50% YoY and the consensus estimate of +4.70% YoY. OG imports amounted to USD3.30 bn (+28.26% MoM, -2.24% YoY), while non-oil and gas (NOG) imports totaled USD17.92 bn (+5.06% MoM, +13.92% YoY). All import categories experienced monthly growth: consumer goods imports rose +14.00% MoM to USD2.31 bn, intermediate goods imports increased +7.05% MoM to USD15.01 bn, and capital goods imports grew +8.87% MoM to USD3.91 bn. The strong import performance was driven by heightened year-end consumption due to Christmas, school holidays, and New Year celebrations. Additionally, import growth aligned with improving manufacturing activity, as reflected in Indonesia’s Manufacturing PMI rising to 51.2, signaling the first expansion since July. On a cumulative basis, total imports rose by +5.31% YoY to USD233.65 bn in FY24. OG imports increased by +1.24% YoY to USD36.27 bn, while NOG imports grew by +6.09% YoY to USD197.38 bn. China remained Indonesia’s largest import source, contributing 36.29% of total imports and growing by +15.19% YoY to USD71.62 bn in FY24.
BI cuts rate amid high forex reserves and Rupiah depreciation
Bank Indonesia (BI) unexpectedly reduced its benchmark interest rate by 25 bps to 5.75%, its first cut since September. even as the Rupiah depreciated by 0.11% MtD to Rp16,265/USD. This decision is likely supported by Indonesia’s robust foreign exchange (forex) reserves, which surged to a record USD155.7 bn in Dec-24, up from USD150.2 bn in Nov-24, driven by sustained trade surpluses, tax and service revenues, government foreign loans, and oil and gas receipts. The reserves are sufficient to cover 6.7 months of imports or 6.5 months when factoring in external debt payments, well above the international adequacy standard of 3 months, providing a solid buffer for Rupiah stability. Furthermore, BI is expected to continue optimizing pro-market monetary instruments such as SRBI, SVBI, and SUVBI, along with forex market interventions through spot transactions, Domestic Non-Deliverable Forwards (DNDF), and Government Securities (SBN) to manage Rupiah volatility amid global financial uncertainties. The rate cut is anticipated to stimulate economic growth amid low consumer purchasing power, as inflation reached a historic low of 1.57% YoY in FY24. Looking ahead, the Rupiah remains under pressure from global uncertainties, including potential trade wars, geopolitical tensions, and expectations of slower FFR cuts. However, optimism persists for increased foreign direct investment in 2025 driven by political stability. Additionally, the proposed extension of the holding period for natural resource export earnings (DHE) from 3 months to 1 year is expected to strengthen forex reserves. We project the Rupiah to reach Rp16,100/USD by YE25, with an average rate of Rp16,080/USD for the year.
