Economic Highlights (Indonesia) - 02/04/2014

Exports Fell By A Smaller Magnitude And Trade Balance Rebounded to A Surplus in February, While Inflation eased on Harvest Season

¨      Indonesia’s exports declined further by 3.0% y-o-y in February but improved from -5.9% in January and compared with a gain of 10.2% in December 2013.The improvement was due mainly to a pick-up in gas exports and crude oil exports recorded a smaller decline. Similarly, non-oil and gas exports fell by a smaller magnitude in March.

¨      On the other hand, imports declined further and by a larger magnitude of 10.0% y-o-y in February, compared with -3.5% in January and -0.8% in December. The drop was due to a sharper decline in the imports of oil products and a retreat in the imports of non-oil and gas during the month.

¨      As a result, the trade balance rebounded to record a surplus of USD785m in February, from a deficit of USD444m in January, albeit lower than a surplus of USD1.5bn in December. Going forward, we are of the view that the trade balance will improve, as a recovery in the developed countries will likely lift export performance of the country to grow by 1.8% in 2014, from -2.4% in 2013.

¨      Separately, the headline inflation eased further to 7.3% y-o-y in March, from +7.7% in February and +8.2% in January, mostly due to lower food prices on the back of better harvest season in March. The core inflation, on the other hand, remained stable at 4.6% y-o-y in March, the same rate of increase as in February

¨      Going forward, we expect inflation to trend lower in the harvest season before picking up in the Ramadhan season in July. Overall, we expect the inflation level to average at 6.2% in 2014, lower than +7.0% recorded in 2013, as we currently do not expect the Government to change its administrative pricing on the subsidised fuel price. Thus, we expect the benchmark rate to be kept unchanged at 7.5% by the central bank in the near term. 

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