Indonesia recorded a trade deficit of US$63 million in July, a reversal from a June trade surplus of around $300 million. The country’s balance of trade has maintained a negative trend overall from January to July with a deficit of $1.9 billion.

Shipments to its main export destinations have decreased against the backdrop of the escalating trade war that has pushed China’s economic growth to a 27-year low, the United States to the brink of recession and triggered contraction in Western Europe’s largest economy, Germany.

“This export downturn is because of highly fluctuating prices of some commodities, which unfortunately are the raw commodities most reliable for Indonesia,” Statistics Indonesia (BPS) head Suhariyanto told a press conference on Thursday.

Exports in July declined 5.12 percent year-on-year (yoy) to $15.45 billion.

Shipments of Indonesian products to China, the US and Japan, the country’s main destinations, fell during the period from January to July.

Exports to China, which mainly consist of coal and crude palm oil, dropped 5.65 percent yoy to $13.68 billion. Shipments to the US dropped 1.88 percent to $9.92 billion and exports to Japan dropped 18.37 percent to $7.91 billion. 

The US-China trade war has weakened the world’s largest economies, forcing them to cut imports of raw materials as businesses in the countries hold expansions. The tariff tit-for-tat has also rattled global trade and economies and pushed down commodity prices.

The softening exports will further drag down Indonesia’s economic growth, which slowed to a two-year low of 5.05 percent in the second quarter, as investments also failed to bump gross domestic product in Southeast Asia’s largest economy.

Growth in investment, the second-largest driver for economic expansion in Indonesia after household spending, nosedived to just 5.01 percent yoy in the second quarter from 5.85 percent in the same period last year.

Economists said the sluggish investment growth was a sign that Indonesia had been unable to capitalize on the supply chain reorganization caused by the ongoing trade war, unlike Vietnam.

University of Indonesia (UI) economist Fithra Faisal Hastiadi warned that the outlook for exports would remain bleak toward the end of the year as policies that had been issued by the government were not strong enough to weather the effects from slowing global trade. 

He estimated that the year-end trade deficit would reach a little over $3 billion. 

“There have not yet been any significant efforts or breakthrough policies from the government to overcome our increasingly worrying global [economic] climate,” Faisal said. “The war front of our trade feud is also getting wider [...] even Indonesia is sort of starting its own with the European Union.”

Furthermore, the declining export trend would spell trouble for Indonesia’s manufacturing sector, which lags behind its Southeast Asian counterpart in capturing investment potentials that were escaping from the US-China tariff feud. 

“When we talk about manufacturing development in particular, giving out [fiscal] incentives is not enough [...] Attracting production or investments requires a much more comprehensive ecosystem that takes into account production, energy, labor and logistics costs,” he said. 

A survey result published earlier in August revealed that European businesses were not impressed by Jokowi’s economic stimulus packages while at the same time were wary of Indonesia’s protectionist tendencies.

The regulatory environment and bureaucratic inefficiency remain the top two investment challenges like last year, with 78 percent and 75 percent of respondents worrying about those aspects.

“For [EuroCham] members, the negative investment list is one of these,” said Corine Tap, chairwoman of the European Business Chamber of Commerce (EuroCham).

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