OVERVIEW

● Exports continued its fall in April for the sixth straight month, down by 13.1% YoY (Mar: -9.4%) above consensus estimate of -7.1% (Bloomberg). On a MoM basis, it fell by 10.8% to USD12.6b after a sharp turnaround in the preceding month (+12.5%). Meanwhile, imports fell lesser by 6.6% YoY (Mar: -7.0%) to USD15.1b, against the consensus estimate of -12.3%. As the fall in exports outpaced imports, the trade balance swung into a record deficit of USD2.5b (Consensus: USD0.5b) from a surplus of USD671m in March. Overall, total trade declined by 9.7% YoY (Mar: -8.2%).

● Exports of non-oil and gas continued its downtrend for the sixth straight month. It fell by 11.0% YoY (Mar: -8.9%) driven by weak shipments in agriculture, manufacturing and mining & others which fell by 15.8%, 11.5% and 6.5% respectively. On MoM, it fell by 8.7% to USD11.9b while its share to total exports expanded to 94.1% (Mar: 91.9%). Similarly, exports of oil and gas-based products posted a sharp decline of 37.1% YoY (Mar: -14.8%) underpinned by a contraction in gas procurement, mining and manufacturing at 100%, 38.4% and 19.5% respectively. On MoM, it fell sharply by 34.9% (Mar: 2.7%) to USD0.7b.

● As anticipated, imports declined for the fourth straight month mainly on fall in the purchase of both oil and gas (-4.0%; Mar: -32.1%) and non-oil and gas (-7.0%; Mar: -2.4%) largely due to government measures to limit imports. The decline was broad-based led by capital goods (-8.7%; Mar: -7.9%) followed by imports of raw materials (-6.3%; Mar: - 7.1%) and consumer goods (-5.4%; Mar: -4.6%). However, on MoM basis, imports expanded by 12.2% to USD15.1b.

● A swing in trade balance to a record deficit in April may exert pressure on the current account balance of payments which may weigh on the Rupiah. While Indonesia's domestic spending accelerated and remained resilient in 1Q19, we foresee Bank Indonesia’s monetary stance to stay put though there is a possibility that it may cut interest rates in 2H19 should the economy deteriorate, inflation remain subdued and the currency strengthen on the back of dovish US Fed.

● As the tit-for-tat trade dispute between the US and China re-escalate, we maintain our view that exports’ growth in 2019 would moderate to 4.5-5.5% (2018: 6.7%) on the back of weak commodity prices while higher import duties are expected to exert pressure on trade activities.

Source: Kenanga Research - 16 May 2019