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Import hike looms over trade balance

Indonesia may see a slimmer trade surplus this year with imports projected to grow higher than exports, widening the country’s current account deficit further, economists have said

Stefani Ribka (The Jakarta Post)
Jakarta
Sat, February 17, 2018

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Import hike looms over trade balance

I

ndonesia may see a slimmer trade surplus this year with imports projected to grow higher than exports, widening the country’s current account deficit further, economists have said.

The country booked a trade deficit of US$670 million in January, an unusual situation as in the past three years, the first month of the year saw trade surpluses, according to the Central Statistics Agency (BPS).

The agency stated that the monthly trade deficit in January was the deepest since April 2014.

The trade deficit was caused by surging imports of 26.44 percent year-on-year (yoy) in January, up 0.3 percent month-to-month (mtm) to $15.1 billion.

Exports, meanwhile, grew moderately by 7.86 percent yoy to $14.46 million but declined by 2.8 percent mtm.

The Bank Central Asia (BCA) Group’s economic, banking and industry research team said the export decline was seasonal, while the increase in imports was mostly driven by the manufacturing sector’s demand for raw materials.

“Although both export and import growth were quite weak to start the year, some pick up in the coming months is still possible, especially given the recent positive data from China,” the team wrote in a research note on Thursday.

Myrdal Gunarto, an economist at Bank Maybank Indonesia, wrote in a research note that a stronger rupiah and rising oil prices had contributed to the surging imports, in addition to a nationwide economic recovery, which led to better demand.

The rupiah strengthened in January due to hefty foreign inflows, with the local stock market booking a net buying position of $132.4 million.

Meanwhile, the local bond market saw foreign ownership increase by 4 percent over the month to Rp 869.7 trillion (US$64.1 billion) as of Jan. 31.

BPS head Suhariyanto said the increase in monthly imports in January was unusual despite the figure having been rising gradually since last September, showing a recovery in industrial activities.

Despite the industrial recovery, imports of consumer goods recorded the highest growth at 32.9 percent yoy to $1.35 billion in January, while raw materials and capital goods grew 24.7 and 30.9 percent, respectively.

Also in the top ten for imported goods with the highest increases include vehicles and components; machineries and electrical equipment; plastics and products; and organic chemicals.

Myrdal said a less aggressive hike in commodity prices this year would lead to slower growth of exports and imports at 7.17 and 6.38 percent yoy, respectively.

Consequently, the current account deficit (CAD) ratio is expected to hit 2.2 percent of the gross domestic product in 2018 from 1.7 percent of the GDP recorded last year.

A swelling CAD is often seen as an imbalance, which may drag down the country’s rupiah amid rising pressure coming from the global side, particularly with the projected faster hike of the Federal Reserve’s fund rate and a stronger US dollar.

However, a stronger US dollar and an oil price rally to net oil importers like Indonesia might restrain the country’s rapid import growth, said Myrdal.

The BCA’s research team voiced a similar opinion, saying that this year might see a lower trade surplus and a wider CAD if domestic demand continues to strengthen, as it would lead to a higher import of goods.

The team wrote that external pressure coming from the Fed’s policy normalization posed a bigger threat to Indonesia this year than a swelling CAD as the former could create “an explosive mix” at the global level, leading to capital outflows and rupiah instability.

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