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RI posts trade balance surplus amid steep decline in imports
Indonesia posted a surprise trade surplus in October, beating economists’ expectations of a deficit
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Indonesia posted a surprise trade surplus in October, beating economists’ expectations of a deficit. Imports declined more than exports amid sluggish global and domestic economic growth, Statistics Indonesia (BPS) announced on Friday.
With a US$161.3 million surplus in October, Indonesia’s trade balance reversed an earlier $163 million deficit in the previous month. From January to October of this year, Indonesia booked a $1.78 billion trade deficit, significantly lower than the $5.57 billion recorded over the same period last year.
Exports declined for 12 consecutive months, with a 6.13 percent year-on-year (yoy) contraction in October to $14.93 billion. The manufacturing sector, which was responsible for three quarters of total exports last month, declined by 2.49 percent yoy to $11.34 billion. The sharpest drop in exports was recorded in the oil and gas sector, slumping 40.07 percent yoy to $920 million.
BPS head Suhariyanto said the decline in Indonesia’s exports was caused primarily by the sluggish growth of commodity prices while the volume of commodity exports increased.
“The volume [of commodity exports] still recorded an increase, but because of falling prices, particularly in coals, compared to the previous year, the value of our exports declined,” said Suhariyanto in Jakarta on Friday.
Global trade is expected to grow significantly slower at 1.2 percent this year down from 2.6 percent in previous estimates by World Trade Organization. Economies around the world are stagnating amid ongoing trade wars and heightened geopolitical risks, including Brexit uncertainties.
Indonesia’s economic growth rate hit the lowest level in more than two years in the third quarter of this year. Economists said contraction in imports indicated weaker domestic economic activities, from the manufacturing industry to consumer demand.
Imports in October contracted 16.39 percent yoy to $14.77 billion, with all types of goods freefalling. Raw and auxiliary goods, which accounted for almost three quarters of the month’s total imports, slumped by 18.76 percent to $10.89 billion.
The value of capital goods imports also declined 11.35 percent yoy to $2.44 billion, with a notable decline recorded in notebooks and machinery, among other goods, said Suhariyanto.
Bank Central Asia (BCA) chief economist David Sumual said the negative growth of capital, raw and auxiliary goods could indicate a slowdown in domestic demand down the road.
“If the imports of capital goods as well as raw and auxiliary materials have fallen, it is not a good indication, as there may be slowdown [in domestic demand],” said David, adding that a drop in domestic demand is usually felt in the following three to six months.
University of Indonesia (UI) economist Fithra Faisal said the decline of imported raw materials and capital goods, both of which are important indicators for domestic industries’ activities, pointed to the general decline of the manufacturing industry.
“This signaled there is a deindustrialization process that could continue in the years ahead,” said Fithra, pointing out that the manufacturing industry posted lower growth than the GDP expansion.
In the third quarter of this year, the manufacturing industry, which accounted for around a fifth of the GDP from the production side, grew 4.15 percent, BPS data showed. It was lower than the 5.02 percent GDP expansion booked over the same period.
The manufacturing industry’s difficulty expanding was related to the recent World Bank report presented to Joko "Jokowi" Widodo, Fithra added, which detailed the relative disconnect between domestic industry and global value chains.
“Imports tariffs on goods needed for the industry are relatively high, so it is no wonder that the increased the cost of production made them struggle to expand,” said Fithra.
Samuel Sekuritas Lana Soelistianingsih, meanwhile, said that capital goods imports were expected to decline following the completion of some of the government’s big infrastructure projects.
She also added that the government’s 20 percent blended biodiesel (B20) policy, which widens the mandate of biofuel usage to lower diesel fuel imports, also contributed to the decline in oil and gas imports.
Imports of crude oil contracted 59.12 percent yoy in October to $359.1 million, lower than the $878 million of imports recorded over the same month last year.
