Tuesday, May 13, 2014

Indonesia Economy: Current Account Deficit Improves in 1Q 2014, Macro Stability To Prevail in 2014


Please use the following link to download the report: Indonesia Economy Report - CAD

Indonesia Economy: Current Account Deficit Improves in 1Q 2014, Macro Stability To Prevail in 2014

¨      Indonesia’s current account deficit in the balance of payments improved marginally to USD4.2bn or 2.1% of GDP in 1Q 2014, from a revised number of -USD4.3bn or 2.1% of GDP in 4Q 2013 and better than -USD8.5bn or 3.9% of GDP in the 3Q. This was mostly due to the improvement in services and income deficits. These were, however, offset partially by a smaller surplus in the goods account during the quarter.
¨      The financial account, on the other hand, recorded a smaller inflow of USD7.8bn in the 1Q, down from +USD8.8bn previously in the 4Q 2013. This was due to capital outflow in other investment account. Higher inflow of direct and portfolio investment, however, mitigated the outflow.
¨      After taking into account of a larger errors and omissions during the quarter, the balance of payments recorded a smaller surplus of USD2.1bn in the 1Q, compared with +USD4.4bn in the 4Q.
¨      Going forward, we are of the view that the goods account surplus will likely record a larger surplus in 2014, on the back of a weaker IDR that will make imported goods more expensive vis-à-vis domestic goods, while rising funding cost will deter companies from expanding capacity. In addition, as the refined mineral exports start to kick in later this year, it could help to boost the surplus as well. This will likely be aided by a smaller deficit in the services account and higher transfer during the year. As a whole, we expect the current account deficit to improve to USD22.8bn or 2.6% of GDP in 2014 (-USD29.1bn or 3.3% of GDP in 2013), providing a more stable macro-economic fundamental. Along with a smaller surplus in the financial account, we expect the balance of payments to improve to record a smaller deficit in2014, before turning around to record a surplus in2015.

Best regards,
RHB OSK Indonesia Research Institute

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