Exports rebounded sharply by 11.0% YoY in February, beating market expectation (consensus: -6.0%; revised Jan: - 2.1%) mainly due to higher shipment of non-oil & gas products

• MoM: rebounded by 2.2% (Jan: -5.6%) to USD13.9b.
• Non-oil & gas: rose 14.6% YoY (Jan: 1.0%), a record 19-month high due to higher exports of agriculture produce (28.4%; Jan: 5.4%) and manufacturing (19.3%; Jan: -3.2%).
• Oil & gas-based products: fell by 26.5% (Jan: -33.9%) on weak exports of mining (-32.7%; Jan: -44.3%).

Higher shipment to the US and other destination boosted February’s exports

• US: expanded to 28.1% YoY in Feb (Jan: 8.0%), but the share of exports decreased to 11.7% (Jan: 12.0%)
• China: growth moderated to 12.6% YoY (Jan: 17.6%), while its share of overall exports decreased to 13.4% (Jan: 16.5%)

Imports fell for eight straight months and at a faster rate of -5.1% YoY (Jan: -4.8%; consensus: -3.1%), weighed by low imports of non-oil & gas products (-7.8%; Dec: -7.2%)

• By category, weaker imports were attributable to a decline led by capital goods (-16.4%; Jan: -5.3%), followed by consumer goods (-12.8%; Jan: 20.3%) and raw materials (-1.5%; Jan: -7.4%).
• MoM: imports sharply contracted by 39.9% (Jan: -11.2%) to USD11.6b.

Trade balance recorded highest surplus since Oct 2011 to USD2.3b (consensus: -USD0.1b; revised Jan: -USD0.6b). Overall, total trade rebounded to 3.1% YoY (Jan: -3.5%), highest in 15 months.

In light of the impact of COVID-19 on production supply chains and domestic demand, we expect exports to weaken in the next few months before gradually recover in 2H20 (KIBB: 1.0% to 4.0%; 2019: -7.0%)

• Year-to-date, export grew by 4.1% YoY, but with COVID-19 outside of China is on the rise, the probability for the trade balance to swing into a deficit is relatively high. This would exert a downward pressure on the Rupiah but would likely be cushioned by the government’s stimulus package as well as the monetary easing bias in the advanced economies.
• Given the rising uncertainty and slowing growth momentum, we expect Bank Indonesia may still have room to cut its policy rate by 25-50bps at its policy decision meeting this Thursday.

Source: Kenanga Research - 17 Mar 2020