Imports’ improvement: A turning point

March exports continued to improve above our expectation

Following prior month’s reading, and also higher than our as well as the Bloomberg survey’s estimate, March exports grew 4.25% MoM (-13.51% YoY due to high-base) to USD11.8 bn helped by raising aggregate volume both from non oil-gas and oil-gas items, reflecting a pickup in global demand. We also note March higher exports occurred amid lower aggregate prices particularly for non oil-gas segment. In sum, the March trade reading brought 3M16 total exports to reach USD33.6 bn (-14.0% YoY).

March exports by main products and market’s destinations

We note that in March, several offshore sales of Indonesia’s products continued to improve such as mineral fuel/coal (10.1% MoM), electrical machinery (8% MoM), vehicle and its parts (21.0% MoM), chemical products (29.8% MoM) and steel-iron (88.6% MoM). Additionally, Indonesia’s exports in March were higher to Malaysia, Thailand, China, United States, India and Korea.

Imports upswing showed a slightly better domestic sentiment

In contrast to a drop in the previous month, March total imports picked up to reach USD11.3 bn, up to its 7 month-high MoM growth at 11.01% (-10.41% YoY on high-base) mainly on the back of higher domestic demand for imported intermediary raw materials which went up 16.9% MoM. By sectors, March imports were driven by mechanical machinery (+5.98% MoM), electrical machinery (+7.58% MoM) and plastics (+16.04% MoM). This development was in line with manufacturing purchasing manager index (PMI) as surveyed by Nikkei-Markit. The index bounced back to above 50 points in March (expansive mode), first time since September 2014, which has been assisted by growing manufacturing production backed by expansion in new orders from domestic business. 

Higher import growth led to slower surplus in March

However, given higher import growth compared to export, March trade surplus reached USD497 mn, slower than February’s position at USD1.4 bn, bringing 3M16 surplus to reach USD1.6 bn, lower than 3M15 surplus level at USD2.3 bn.

Reiterating 2016 imports growth target at 3.6% on improving domestic demand  

At this stage of the cycle, we believe business activities may start gaining some momentum to pick up. Relatively manageable inflationary pressure as well as stable Rupiah movement has helped business players in order to enable more reliable expansion plans. Thus, they are likely spreading optimism by reactivate purchasing and restocking of capital goods and raw materials in our view. Therefore, we reiterate our target that Indonesia total imports should reach USD147.9 bn (+3.62%) in 2016 from USD142.7 bn in 2015. Coupled with also expected higher total exports at USD156.5 bn (+4.13%), we foresee 2016 trade surplus should reach USD8.6 bn (2015: USD7.6 bn).