Indonesia’s Trade Balance Returned to a Deficit in July

Indonesia’s export growth declined at a slower pace of 5.1% yoy in July compared to -8.9% in June, its smallest decline since January 2019. This was led by the turnaround in exports of oil and gas, which rebounded by 13.3% yoy (-54.7% in June), its first positive expansion since December 2018. As for imports, it registered a double-digit contraction of 15.2% yoy in July compared to an expansion of 2% in June. The trade balance returned to a deficit of US$63.5mn in July following two consecutive months of surpluses as compared to US$297.3mn in June and US$218.5mn in May. However, the deficit of US$63.5mn in July was significantly better than market expectations of a large US$420mn deficit.

Going forward, we expect external headwinds to impact on Indonesia’s trade, especially lower demand from China and weak commodity prices. Recently, the European Commission imposed countervailing duties from 8% to 18% on imports of subsidised biodiesel from Indonesia (possibly in a bid to even the playing field for European Union producers). We believe this poses some risk to Indonesia’s export growth given that palm oil is one of the country’s top export while Indonesia’s total exports to the EU account for 9% of total exports. In addition, similar to other Asian countries, Indonesia’s trade performance will also continue be weighed down by ongoing trade war uncertainties and the slower global growth backdrop.

Separately, the ongoing trade war uncertainties have also impacted on Singapore’s economic growth. In a statement released by the Ministry of Trade and Industry (MTI), Singapore downgraded its 2019 GDP growth forecast to 0-1% compared to its previous forecast of 1.5-2.5% where growth is expected to come in at around the mid-point of MTI’s forecast range. The downward revision in MTI’s growth forecast was released alongside the final estimates of 2Q19 GDP growth which confirmed that Singapore’s economy slowed to a ten-year low of 0.1% yoy (1.1% yoy in 1Q19). Slower growth during the quarter was dragged by the sharper contractions in the manufacturing sector of 3.1% yoy (-0.3% in 1Q19) due to lower fall in output in the electronics, transport engineering and precision engineering clusters. The wholesale and retail trade sector also declined by 3.2% yoy (-2.5% in 1Q19) driven by the fall in machinery, equipment and supplies sub-segment.

Amid expectations of lower GDP growth as well as a global growth slowdown, we believe this may prompt Monetary Authority of Singapore (MAS) to ease its monetary policy by reducing the slope of the S$NEER policy band in the next meeting in October 2019. In addition, other economic indicators have also showed signs of a slowing economy, such as non-oil domestic exports (NODX), which fell steeply by 17.3% yoy in June, its sharpest drop since February 2013.

Source: Affin Hwang Research - 16 Aug 2019