Exports continue to drop in May with little sign of improvement in the future as the Central Statistics Agency (BPS) predicts less trade surplus later this year.

Indonesia posted a US$950 million trade surplus in May for the fifth straight month, producing a combined five-month surplus total of $3.75 billion.

But the surplus was not because of rising exports. It was instead backed by a faster downward trend in imports that has been largely due to Indonesia'€™s slowing economic activity.

Exports dropped 15.24 percent year-on-year (yoy) in May to $12.56 billion as oil and gas exports slumped 42.32 percent amid low global oil prices, while non-oil and gas shipments dipped 10.07 percent.

By the end of May, overall exports declined 11.84 percent to $64.72 billion, underscoring a major challenge for the government to reach its 28 percent export growth target this year as part of its ambitious plan to triple exports within five years.

'€œIndonesia should build efforts to increase exports in alternative products, especially in secondary and tertiary types, because people'€™s incomes are increasing globally,'€ said Sasmito Hadi Wibowo (BPS deputy head for distribution and service statistics) in reference to manufactured goods and services.

BPS head Suryamin said the largest decline in non-oil and gas exports, equal to 17.54 percent month-on-month, occurred in animal fat and vegetable oil products, including palm oil.

Indonesia'€™s non-oil and gas exports in manufacturing and minerals between January and May this year fell by 6.74 percent and 11.18 percent yoy, respectively. Meanwhile, the agriculture sector booked an increase of 1.58 percent yoy.

The US was Indonesia'€™s top destination for exports in May with a total of $1.28 billion, followed by India ($1.15 billion) and Japan ($1.14 billion), with three of them contributing 31.94 percent to overall exports.

As for imports, they plunged 21.4 percent yoy in May to $11.6 billion, as oil and gas imports plummeted 43.87 percent and non-oil and gas deliveries fell 13.87 percent. During the month, various imported goods fell, with the biggest drop suffered by machinery and mechanical equipment that slumped by 16.53 percent month-on-month to $310 million.

From January to May, overall imports dropped 17.9 percent, with oil and gas deliveries shrinking 42.84 percent and non-oil and gas imports down 9.68 percent as weak domestic economic activities mean less demand for imported goods.

Imported consumption goods dropped 14.51 percent while raw material and capital goods declined 18.91 percent and 14.62 percent, respectively.

Indonesia'€™s economy shrank to its lowest level in six years in the past few quarters, with the latest first quarter reading showing 4.7 percent growth, a level unseen since 2009.

But that may change soon if the government realizes its pledges to boost infrastructure projects that may start to take place later this year, which could create multiplier effects in the country'€™s economy, including demand for imported products.

'€œThe surplus is predicted to narrow because imports will probably rise if infrastructure projects are started, especially in capital goods and raw materials,'€ Sasmito said, signaling that exports will remain weak.

Glenn Maguire, ANZ chief economist for South Asia, ASEAN and the Pacific, said the trade balance would remain in surplus until there were signs of government spending, adding: '€œWe were expecting to see signs of the pending investment boom in the data by now.'€

BCA economist David Sumual said in his report that the unusually weak imports, especially in consumer goods and raw materials, prior to the fasting month of Ramadhan, confirmed the weakness in purchasing power and the slowdown in production activities.

'€œThe unusually weak imports strengthened our suspicion that economic growth in second quarter will remain subdued,'€ David said.