Weak demand still lingered; Imports returned to contraction territory
Opposite to prior month’s MoM positive growth, April total imports failed to meet our expectations as well as market estimate by contracting 4.62% MoM (-14.62% YoY) or equal to USD10.8 bn. This was mainly due to combination of two major factors: 1) A continued sluggish domestic demand as shown by slumped import aggregate volume at -15.67% MoM and a drop in consumption for imported goods at -12.38% MoM, and 2) A slower-than-expected government’s role in boosting productive expenditure, which somewhat could not restrain a downturn in demand for imported raw materials across several products, including fertilizer (-21.51% MoM) and vehicles and its spare parts (-7.71% MoM). As a result, 4M16 total imports reached USD42.7 bn (-13.44% YoY).
April exports slightly dropped; Trade surplus was larger-than-expected
Also, worse than our as well as market consensus’ projections, April exports contracted 3.07% MoM (-12.65% YoY) to USD11.4 bn despite higher aggregate price for non-oil and gas products at 10.53% MoM. In fact, we note that a setback in exports were strongly displayed by lower aggregate export volume (-10.09% MoM), representing a further dismal global demand. Additionally, lower April’s exports were also triggered by deteriorated our trading partner demand for mineral fuel (-10.59% MoM), jewelry (-18.05% MoM), electrical machinery (-4.77% MoM) and ore-ashes (-36.64% MoM). As a consequence of sharper decline in imports, also, beyond our and the street estimates, the April trade balance recorded a larger surplus of USD667 mn compared to March’s level of USD508 mn. The April’s reading brought the 4M16’s surplus to reach USD2.3 bn.
1Q16 CAD at 2.1% of GDP: A domestic consolidation continued
Higher compared to our estimate but relatively better than prior quarter’s level, the 1Q16 current account deficit (CAD) narrowed to USD4.7 bn (2.1% of GDP; USD5.1 bn in 4Q15) which was primarily led by larger non-oil and gas trade surplus. Moreover, slower-than-expected government capital expenditure disbursement in the first quarter of 2016 caused a disappointing import demand, dragging down 1Q16 non-oil & gas import to -7.0% QoQ. In addition, combined factors from relatively continued low commodity and energy prices as well as weak export demand continued to contract total non-oil & gas exports to -5.0% QoQ. We also noted that improvement in the current account was also contributed by the reduced services deficit following the drop in imports and a lower spending of resident travelers during the their visit abroad.
1Q16 FA surplus dropped as other investment component booked a deficit
On the contrary, 1Q16 financial account (FA) surplus declined to USD4.2 bn (4Q15: USD9.8 bn) and lower compared to our projection. The reduced 1Q16 FA surplus was mainly caused by other investment component which booked a large deficit as a result of the remained low withdrawal of government as well as private external borrowing. Subsequently, 1Q16 total direct investment contracted by 20% QoQ (USD2.2 bn) with capital inflows in portfolio investment only decreased by 9% QoQ to USD4.4 bn as global investors remained vigilant over the prospect of China’s economy and the challenge faced by Indonesia to preserve domestic demand amid the end cycle of commodity booming.
1Q16 BoP turned to a slight deficit of USD287 mn; but expects to gain surplus ahead
In sum, due to unexpected deficit in other investment component which turned to reduce FA surplus despite a slower CAD in 1Q16, the balance of payments (BoP) booked a USD287 mn deficit (4Q15: USD5.1 bn surplus), beyond our estimate of USD0.95 bn surplus. However, a deficit in BoP could not prevent the Rupiah to strengthen by 3.8% in 1Q16. This was part of improved investors’ confidence over Indonesia’s economic resiliency. Pushed by investor-friendly investment policies and low interest rate environment as well as global easing monetary moves, we believe surplus in FA may accelerate to USD21.9 bn backed also by higher capital inflows. We hope this FA surplus could sufficient to finance CAD and to reflect the overall BoP at USD2.1 bn surplus. Thus, is it possible that 2016 average Rupiah may stabilize at around 13,020/USD, stronger than our previous target of 14,058/USD.
