PT. Mirae Asset Sekuritas Indonesia

Worse-than-expected trade deficit of USD1.16bn (consensus: –USD0.92bn)

Indonesia recorded a worse-than-expected trade deficit of USD1.16bn in January (vs. market consensus of USD0.92bn deficit), weakening from the December 2018 trade deficit of USD1.03bn. Although imports contracted (-1.83% YoY) for the first time in 19 months, exports also continued to decline (-4.70% YoY vs. -3.57% YoY in December 2018), causing the trade deficit to persist.

The decline in exports (-4.70% YoY) was mostly due to a fall in oil & gas exports ( 6.72% YoY vs. +16.71% YoY in December 2018), along with declining global commodity prices. The commodity export that increased the most in January was ore, crust and metal ash (+37.06% MoM; an increase of USD80.3mn). Meanwhile, machinery/mechanical aircraft saw the largest export decline (-22.41% MoM; a decline of USD127.1mn). Non-oil & gas exports to China, the US, and Japan—the three biggest destination countries—declined by 11.05%, 1.94%, and 13.65% YoY, respectively, affected by the ongoing US-China trade war and slowing global economic outlook.

The 1.83% YoY contraction in imports, following 19 months of positive growth, shows that the government’s efforts to curb imports are having an effect. The biggest contributing factor was the huge decline in oil & gas imports (-25.22% YoY vs. -20.99% YoY in December 2018). However, non-oil & gas import growth also slowed to 2.21% YoY (vs. +6.37% YoY in December 2018). By economic category, all components—consumption goods, raw materials, and capital goods—contracted ( 10.39%, -0.11%, and -5.10% YoY, respectively), indicating a slowdown in investment and domestic demand.

We expect current account deficit to narrow to 2.7% of GDP

Ongoing US-China trade frictions will likely keep global trade on a tight leash. Moreover, China’s moderating economic growth is likely to continue putting pressure on global commodity prices, affecting Indonesia’s exports. We see current account deficit narrowing to 2.7% of GDP (vs. 2.98% of GDP in 2018) on the back of weakening export growth. However, the government’s measures to curb imports of capital and consumption goods should keep import growth capped.

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