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Trade balance on rocky road as coronavirus risks loom
Businesspeople and analysts expect Indonesia’s trade deficit to widen this year as the coronavirus epidemic is likely to drag down the country’s exports to China
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usinesspeople and analysts expect Indonesia’s trade deficit to widen this year as the coronavirus epidemic is likely to drag down the country’s exports to China.
They said the coronavirus disease (COVID-19) that first appeared in Wuhan, China, in early December would not only affect exports but also imports of raw materials of industrial goods from the world’s second-largest economy.
Indonesian Employers Association trade division head Benny Soetrisno said in Jakarta on Monday that the outbreak would would significantly impact Indonesia in the second quarter of 2020, when stocks of imported raw materials used for exported-oriented goods would run low amid China’s currently limited capacity to export to Indonesia.
In January, imports of raw materials and capital goods dropped by 7.35 percent and 5.26 percent year-on-year (yoy), respectively, Statistics Indonesia (BPS) announced on Monday.
“Finding alternative raw materials will certainly be difficult, as it takes time to develop them,” said Benny, adding that materials would be more expensive even if companies managed to find other import sources, eventually pushing up prices of end products.
“There are no alternative moves for now,” he concluded.
But raw material shortages are not the only COVID-19 effect that could worsen already sluggish exports and imports, which could result in another trade deficit in 2020, experts predict.
In January, Indonesia recorded a US$864 million deficit in its trade balance. BPS recorded total exports of $13.41 billion, a 3.71 percent decrease yoy, while total imports stood at $14.28 billion, a 4.78 percent decrease yoy.
Non-oil-and-gas exports to China fell by 9.15 percent month-to-month (mtm) to $2.1 billion in January, while non-oil-and-gas imports declined 3.08 percent to $4.07 billion.
Center of Reform on Economics (CORE) research director Mohammad Faisal said in Jakarta on Monday that the coronavirus had pushed down demand and productivity in China, which also affected Indonesia, since China was the country’s top export destination and import source.
Indonesia imported $44.5 billion worth of non-oil and gas products from China throughout 2019, representing almost 30 percent of overall imports in that category.
Meanwhile, Indonesia’s non-oil and gas exports to China increased by 5.9 percent to $25.8 billion in 2019 from the previous year, representing 17 percent of total exports.
Bank Mandiri chief economist Andry Asmoro said in a press statement that the coronavirus outbreak in China, coupled with weakening global growth, may outweigh positive catalysts from the United States-China trade deal, further burdening Indonesia’s exports.
“Going forward, we see a continued trade balance deficit in 2020,” his statement reads.
BPS head Suhariyanto on Monday said the coronavirus had did not significantly contributed to the slowdown in exports and imports in January but would likely only impact trade in the following months.
This is because the coronavirus outbreak became widespread only after Chinese New Year, which took place on Jan. 25, while the World Health Organization had only declared an emergency status in the last week of January, he claimed.
“We need to be cautious, so that the effects won’t be as bad as they could potentially be,” he said.
The rapidly spreading virus has claimed another 98 lives, bringing the total death toll in mainland China to 1,868 on Tuesday, with 1,886 new confirmed infections for a total of 72,436, the National Health Commission said as reported by Reuters.
The chairman of Indonesian Chamber of Commerce and Industry (Kadin)’s permanent committee on exports, Handito Juwono, warned of another looming post-outbreak threat to the trade balance: China’s incentives to help small and medium enterprises recover.
Local Chinese media reports have revealed that Chinese authorities rolled out policies on rent, tax and financing in early February to cushion the COVID-19 outbreak’s impact on SMEs.
Similar incentives could result in a flood of cheap Chinese products to Indonesia that would worsen the trade deficit after Chinese authorities contain the disease.
“And Indonesia will be hit hard by it. That’s why we need to prepare from now on how to ‘welcome’ the [flood of imports],” said Handito, suggesting Indonesia bolster its exports to offset the potential import influx.
