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ECONOMIC UPDATE - What to Expect To be Pessimistic or Optimistic?

ECONOMIC UPDATE - What to Expect

To be Pessimistic or Optimistic?


Some domestic data need our attention

In the near future, we need to focus our attention to Indonesia’s domestic data/event as BPS is scheduled to release January trade data in February 15 and Bank Indonesia’s Board of Governor will meet in Feb 20-21. On global side, US-China trade talk is seen to bear fruit as the spirit of optimism is reflected from both sides. US 4Q18 GDP and Dec PCE inflation data release will be delayed to beginning of March because of government shutdown.


Global slowdown to weaken export performance and keep trade deficit high

January data should continue reflecting the global slowdown impact to Indonesia’s export and trade balance. As of February 13, Bloomberg consensus sees export to have negative growth of -2.54% YoY, import at -1.15% YoY with trade deficit around USD 1.04 bn. In our view, export growth will still have pressure from sluggish global demand. China’s January import growth remained negative as it posted -1.5% YoY even though it was better than December figure of -7.6% YoY. Commodities price also did not support export as January average coal price weaken by -6.7% YoY and CPO price declined -17.0% YoY. We also see negative growth of import in January. Indonesia’s manufacturing PMI was lower at 49.9, indicating deceleration of domestic manufacturing activities. Lower oil price (-13.0% YoY) will also drag down growth. All in all, we expect export to have negative growth of -5.0% YoY with import at -3.28% YoY, resulting a trade deficit of USD -982 mn.  


BI to hold the rate and remain hawkish

Bank Indonesia (BI) will start its two-day board of governor meeting in Feb 20 and announced the result in Feb 21. Based on our assessment, there is no necessary rate movement for the central bank in this month. GDP data denoted Indonesia’s growth remained solid at 5.18% YoY in 4Q18 and 5.17% YoY in FY2018. The problem is only on CAD which widened to 3.57% of GDP in 4Q18. Should the widening CAD persist, BI will be incentivized to remain hawkish in 2019. However, the financial account surplus of USD 15.7 bn and the overall BoP of USD 5.4 bn present BI some sort of assurance that its hawkish stance bodes well to attract capital inflow to the country. Rupiah also looked resilience; trading at around Rp 14,000 in January - February even though the forex reserve had minor correction of USD 0.6 bn in January. We see BI will hold the 7 days reverse repo rate at 6.00% and maintain its hawkish stance in January meeting.


Trade talk: more optimism is seen

As the deadline (March 1st) draws near, market believed that the trade talk between US and China to be progressing on the right track. President Donald Trump expressed optimism to the trade talks; he even offered a flexible deadline of trade truce (March 1) if both sides are near to a breakthrough deal. Recent data release from China, especially the weak export-import figures, may have played a part in their softening attitude of late, pressuring them to achieve a deal with the US. Although the uncertainty remains, current trade talk progress may give positive sentiment to Indonesia. If this deal is able to lift some or even all of previous tariff, China’s slow down may not be as bad as predicted. Moreover, the planned tax stimulus will make the Chinese growth outlook brighter. On this case, it will benefit Indonesia as China’s growth will increase the demand of its commodities (esp coal), hence fixing Indonesia’s export and CAD.