Narrowing surplus: “Increase in imports faster than exports”

Narrowing surplus: “Increase in imports faster than exports”

Trade Review

Indonesia's trade balance recorded a narrowing surplus in May 2016. The narrowing trade surplus is due to the increase in imports faster than exports. Furthermore, Indonesia’s trade balance in May 2016 was surplus of USD 375.6 million, narrowing compare with a surplus of USD 662.3 million in one month earlier. Indonesia’s exports in May 2016 stood at USD 11,511.0 million slightly rose by 0.31% m-o-m. On yearly basis, Indonesia’s exports still decreased by 9.75% y-o-y. The increasing of monthly export performance was driven by the increasing crude oil price. Indonesia’s oil and gas export rose to USD 957.9 million in May 2016 from USD 891.8 million in the previous month (up by 7.42% m-o-m). The rising of oil & gas exports also due to the increasing crude oil production by 23.49%. The price of Indonesian crude oil on International markets actually rose to US$ 44.68 per barrel in May 2016 from US$ 37.20 per barrel in the previous month. Furthermore, the increasing of Indonesia’s oil and gas exports was driven by the increasing of crude oil exports (up by 30.22% m-o-m), while exports of oil products fell by 17.16% m-o-m and exports of natural gas also decreased by 4.42% m-o-m.  

Meanwhile, Indonesia’s non-oil and gas exports fell to USD 10,553.1 million in May 2016 from USD 10,584.1 million in the previous month (slightly down by 0.29% m-o-m). Furthermore, non-oil and gas export decreased due to falling exports of CPO (down by 3.38% m-o-m), machinery/electrical appliance (down by 4.34% m-o-m), machinery/mechanical appliance (down by 17.56% m-o-m), chemical products (down by 9.60% m-o-m), and tin (down by 41.24% m-o-m).

On the other hand, the total imports in May 2016 reached to USD 11,135.4 million, rose by 2.98% m-o-m. The increasing of imports was driven by improving domestic economy activities. As in previous years, the increase in imports is also due to imports of consumer goods imports to rebound ahead of Ramadan celebration. Indonesia’s non-oil and gas imports rose to USD 9,466.8 million in May 2016 from USD 9,451.5 million in the previous month (up by 0.16% m-o-m). Furthermore, non-oil and gas export increased due to rising imports of plastic & the articles thereof (up by 5.46% m-o-m), cereal (up by 16.30% m-o-m), sugar & confectionery (up by 92.08% m-o-m), oil seeds (up by 45.32% m-o-m), and aircraft & parts thereof (up by 159.01% m-o-m). Meanwhile, Indonesia’s oil and gas import rose to USD 1,668.6 million in May 2016 from USD 1,362.1 million in the previous month (up by 22.50% m-o-m). The rising of oil and gas imports due to increase in demand due to the rising oil price. Furthermore, the rising of Indonesia’s oil and gas imports was driven by the increasing of natural gas imports (up by 17.30% m-o-m) and oil products (up by 11.60% m-o-m), while imports of crude oil also rose by 37.14% m-o-m. By type of goods, imports of raw material increased by 3.86% m-o-m to USD 8,492.9 million and imports of capital goods fell by 7.14% m-o-m to USD 1,644.0 million. Meanwhile, imports of consumer goods increased by 15.37% m-o-m to USD 998.5 million in May 2016.

Market Implication

FX Markets

Along with the narrowing surplus of trade balance gives negative sentiment on the Rupiah. Furthermore, the negative sentiment of Rupiah still occur as a result of the sluggish on the domestic economy, Brexit threat, and slow down of China economy. As in previous years, the pressure of Rupiah is also caused by an increase USD at mid-year demand for holiday season, the payment of debts, dividends, and oil imports. Meanwhile, positive sentiment towards Rupiah came from the small possibility of a Fed rate hike this month. With this condition, the Rupiah is still under pressured in the near future.

Bond Markets

The narrowing of trade surplus would also give negative sentiment toward Indonesia’s bond markets. Furthermore, the expectations of an increase in the budget deficit this year (2.5% per GDP from 2.2% per GDP), the sluggish on domestic economy, China's economic slowdown, Brexit threat, the weakening of Rupiah, and the expectations of inflation hike also create pressure on the Indonesia’s bond markets. By looking at these conditions, we expect Indonesia’s bond markets may move sideways in the near future.