● Exports fall again in September for the eleventh straight month, declining by 5.7% YoY (Aug: -10.0%) close to the consensus estimate of -5.8% (Reuters). On a MoM basis, exports fell at a slower pace of 1.0% (Aug: -3.2%) to USD14.1b. Similarly, imports declined by 2.4% YoY (Aug: -15.7%) to USD14.3b, surprisingly lower than consensus estimate (-4.2% YoY). Consequently, the trade deficit returned to USD160.1m (Aug: -USD112.4m), far lower than the consensus estimate of USD100.0m trade surplus. On a quarterly basis, exports fell by 6.9% YoY compared to a sharp decline of 8.9% recorded in 3Q19. Overall, total trade extended its fall for the tenth straight month at -4.1% YoY (Aug: -12.9%).

● The sluggish exports performance in September was attributable to weak shipment in exports of oil & gas and non-oil & gas products. Non-oil and gas products remained in contraction, but fell at a slower rate of 2.7% YoY (Aug: -7.2%) supported by sustains exports of agriculture (12.2%; Aug: 12.0%), though manufacturing and mining & others continued to fall at 0.4% and 14.8% YoY respectively (Aug: -4.6% and -22.4% respectively). Meanwhile, exports of oil and gas-based products dropped sharply by 37.1% YoY (Aug: -38.5%) weighed by sluggish exports of mining (-47.3%; Aug: -45.1%). However, manufacturing related oil and gas exports grew 24.0% YoY (Aug: +27.4%), while exports of gas procurement surged 566.7% YoY.

● The decline in imports (-2.4%; Aug: -15.7%) was largely dragged by a sharp fall of 30.5% in oil and gas-based products, By category, the fall was mainly due to declines in imports of raw materials (-5.9%; Aug: -18.2%), while both consumer goods and capital goods bucked the trend, gaining 6.1% and 8.9% YoY respectively. On a MoM basis, imports inched up by just 0.6% (Aug: -8.7%).

● Year-to-date exports fell by 8.0% YoY (Jan-Sep 2018: +9.4%) indicating a sluggish export growth trend for 2019 going forward on the impact of the prolonged US-China trade feud and the growth slowdown in key export markets, followed by weak commodity prices. While the US and China seemed to show progress that some sort of a compromised deal might be achieved soon, we do not see that Indonesia’s exports would recover in the near term. This is largely due to no major breakthrough made during the talks. Hence, we remain cautious on global trade development, on the back of bleak outlook arising from the trade war fears which has also prompted World Trade Organisation (WTO) to lower global trade forecast to 1.2% for 2019, substantially slower than the previous 2.6% growth forecast in April. Hence, we maintain our projection of Indonesia’s exports growth to contract between 5.0% to 10.0% YoY for 2019 (2018: +6.7%).

Source: Kenanga Research - 16 Oct 2019