T

he current account deficit (CAD) narrowed in the third quarter from the previous quarter, paving the way for a lower full-year figure, the latest balance of payment (BoP) report has shown.

According to the report, the CAD reached US$4 billion, or equal to 1.86 percent of gross domestic product (GDP) in the third quarter. The current account itself is the broadest measurement in international trade and an important part of the BoP.

The third quarter deficit narrowed from 1.95 percent of GDP or $4.2 billion in the second quarter, a stark contrast from 3.02 percent or $7 billion posted during the same period in 2014. The latest result was mostly backed by declining imports in the July to September period, which Bank Indonesia (BI) attributed to slower domestic demand as the economy cooled.

Overall imports fell to $31.95 billion from the previous quarter and were 24 percent lower compared to a year ago. The most significant drop was reported in non-oil and gas imports, which were down 10.1 percent quarter-to-quarter (qtq) and 18.2 percent year-on-year (yoy).

The declining imports also translated into a lower use of foreign services, including freight. The services balance posted a lower deficit in the third quarter at $1.95 billion from $2.65 billion in the second quarter.

Meanwhile, the BoP also revealed a $1.2 billion surplus in the capital and financial accounts, although the amount was lower compared to the $2.2 billion surplus posted in the second quarter and $14.7 billion in the third quarter of 2014. The July to September period saw quite significant capital outflows, especially from portfolio investment, such as the capital and bond markets, BI wrote in the BoP report.

The central bank attributed the outflows to the global economic slowdown and heightened uncertainty over the US Federal Reserve'€™s plan to jack up its Fed fund rate. At the same time, China'€™s move to devalue its yuan in August also increased global financial risk.

'€œCapital outflows in portfolio investment during the period were recorded at $2.2 billion, overturning a $5.7 billion surplus in the previous quarter,'€ the report read. At the end, the BoP booked a deficit of $4.56 billion in the third quarter, widening from $2.92 billion in the second quarter.

Separately, Bank Central Asia (BCA) chief economist David Sumual said that the narrowing CAD figure was '€œa fruit of BI'€™s patience to maintain its benchmark interest rate'€. David estimated that the full-year CAD may even be below 2 percent due to the fact that trade activities were usually more controlled in the last quarter.

'€œThe time before year-end is also commonly the time for window dressing, making stocks look attractive to investors, improving overall performance.'€

Bank Danamon economist Dian Ayu Yustina also acknowledged that there was the potential for the country to report a lower-than-expected CAD this year.

'€œA large drop in imports, which also reflects a large decline in the use of imported freight services, will cause the CA [current account] to narrow significantly,'€ she said.

'€œWe expect the CAD for the overall year could reach around 2 percent of GDP. Imports may start rising modestly in the fourth quarter as many construction projects have begun.'€