OVERVIEW

● Indonesia’s exports continued its decline in March, decreasing by 10.0% YoY (Feb: -11.2%), lower than the consensus estimate of -11.2% (Bloomberg). On a MoM basis, however, it rebounded by 11.7% to USD14.0b after a sharp fall in the preceding month (-10.0%). Meanwhile, imports fell by 6.8% YoY (Feb: -13.8%), beating the consensus estimate of -3.8%. As a result, the trade surplus unexpectedly widened to USD0.54b in March from USD0.33b recorded in February.

● Exports of non-oil and gas continued its downtrend for the fifth consecutive month. It fell by 9.2% YoY in March (Feb: -10.2%) but rebounded sharply on MoM by 13.0% (Feb: -9.8%). However, its share to total exports inched higher to 92.2% (Feb: 91.2%). By sector, exports of manufacturing, mining and agriculture dropped significantly by 8.1%, 15.4%, and 3.9% respectively (Feb: -8.3%, -20.8% and -0.9% respectively).

● Similarly, exports of oil and gas-based products posted a sharp decline of 18.3% YoY (Feb: -20.2%) underpinned by a contraction in manufacturing (-31.3%), gas procurement (-73.8%) and mining (-16.3%). On MoM, it fell by 1.6% (Feb: - 10.1%) to USD1.1b.

● Meanwhile, imports declined for a third straight month on the back of weak shipments in both oil and gas (-31.2%) and non-oil and gas (-2.3%). On a MoM basis, it rebounded by 10.3% to USD13.5b. The decline was broad-based led by capital goods which fell by 7.8% YoY followed by imports of raw materials and consumer goods at -6.8% and -4.5% respectively. The decline in imports is widely expected and mainly due to the government’s aim to reduce its trade deficit via a tariff hike imposed last year. It also supported the central bank's outlook of a narrowing current account deficit which we expect to reduce to below last year’s 3.0% of GDP. Despite the improvement, we continue to expect Bank Indonesia’s monetary stance to lean towards a dovish stance and possibly a rate cut in the 2H19.

● Overall, we maintain our view that exports’ growth in 2019 would moderate to 4.5-5.5% (2018: 6.7%) underpinned by a slowdown in global trade and the expectation that the price of commodities, mainly oil and gas, to remain weak while higher import duties are expected to exert pressure on trade activity in the near term.

Source: Kenanga Research - 16 Apr 2019