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Analysis: 2Q15 Balance of payment: In deficit
Better than our forecast of US$5
Change Size
Better than our forecast of US$5.6 billion and consensus estimate of $5.4 billion, the current-account deficit (CAD) improved to $4.5 billion or 2.1 percent of gross domestic product (GDP).
Services balance improved 6.6 percent year-on-year (yoy) supported by transportation, which jumped 20.1 percent yoy while primary-income balance improved 6.9 percent yoy, helped by lower income repatriation from equity investments that dropped 12.6 percent yoy.
In our view, this is a reflection of the current slowdown in the business environment. The trade balance of $4.1 billion in the second quarter of this year (Q2 2015) also cushioned the CAD, which we expect to keep improving through year end on the back of continued lower imports.
In Q2 2015, the private sector liabilities position reached -$1.1 billion, dropping $3.1 billion yoy and $2.2 billion quarter to quarter (q-q) due to an increase in offshore deposits. Meanwhile, direct and portfolio investments decreased 2.3 percent yoy and 28.2 percent yoy respectively.
As such, this led to a financial account (FA) surplus of $2.5 billion (-82 percent yoy, -61 percent q-q) (Table 3), attributable in our view mainly to recent economic divergences between emerging markets and the US as well as rupiah depreciation.
In sum, the improved CAD along with lower financial and capital account (CA) balances led to a balance of payment (BoP) deficit of $2.9 billion in Q2, 2015, far below our estimate of $2.2 billion surplus.
Looking ahead, we cut our 2015 CAD target to 2.0 percent of GDP (previous: 2.5 percent), as falling oil prices (Brent: $48.5/barrel) increase the likelihood of a lower CAD. In Q3, 2015 we expect the CAD ratio to improve to 1.8 percent of GDP, supported by continued low import levels.
Sustainability of financial accounts should be the next issue as a tightening financial market environment is likely to limit GDP growth and falling growth expectations could lead to deterioration in capital inflows. Pressure on a BI rate cut should rise now, but we expect one to come at the earliest in 2016, once inflation eases.
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The writer is an analyst at Bahana Securities
