Linda Yulisman, Jakarta – Concerns over a widening current account deficit have temporarily eased as Indonesia posted a larger than-expected trade surplus in February despite signs of slowing manufacturing activities.
Due mostly to lower oil prices, trade surplus in January continued into February when exports declined by 16 percent year-on-year (yoy) to US$12.2 billion while imports contracted at a quicker pace of 16.2 percent to $11.5 billion, according to the Central Statistics Agency (BPS).
A surplus of $738 million was recorded in February, albeit at a slower pace than $744 million in January.
"Given that the trade surplus for the first two months of 2015 already totalled $1.48 billion [as against $399 million in the same period of 2014], we think a large trade surplus will be registered for Q1 [the first quarter]," said Barclays analyst Wai Ho Leong in a note.
A positive trade account will help narrow the current-account deficit and eventually help ease the volatility of the rupiah, which is already Asia's worst-performing currency this year.
The rupiah's Jakarta interbank spot dollar rate, a benchmark issued by the central bank, declined by 0.03 percent to Rp 13,237 from Rp 13,191 on Friday.
Lower demand for the rupiah is likely in the first quarter as imports of oil as well as capital and raw materials for manufacturing activities slowed, according to the BPS.
Bank of America Merrill Lynch said in a research note that the narrowing of the oil-trade deficit, due to lower oil prices, would translate into a sharp narrowing of the current account deficit in the first quarter.
"By our estimates, Indonesia's current account gap will likely narrow to below 2 percent of GDP [gross domestic product] in Q1, from 2.8 percent in Q4 last year."
However, the BPS has underscored a 40.6-percent plunge in shipments to China, Indonesia's biggest trading partner, in the first two months of the year as against the same period last year. In what appears to be the largest drop in history, Indonesia could only sell $2.03 billion worth of coal, palm oil, rubber, wood and chemical products to China, which accounts for around 11 percent of Indonesia's export share. "Temporarily, China's inventory of raw materials is sufficient because in the past they imported a lot. But they will need to buy again when the stock runs out," said BPS deputy head for distribution and service statistics Sasmito Hadi Wibowo.
"The business confidence index in China fluctuates and this will affect their demand for our primary commodities that feed their manufacturing activities. Their purchase of our commodities will apparently shrink until up to the end of the first half," Indonesian Institute of Sciences (LIPI) economist Latif Adam estimated.
Exports to the US also declined by 4.43 percent to $2.45 billion, while shipments to Japan dipped by 2.17 percent to $2.28 billion.
Aside from the low demand for raw materials, Indonesia is also facing continued weak demand for manufacturing productions as indicated by contraction in the imports of raw materials and capital goods.
Imports of raw materials and intermediary goods, which account for 76 percent of total imports, dropped by 15.88 percent to $18.38 billion. The purchase of capital goods, which usually support direct investment, fell by 16.05 percent to $4.17 billion.
"Manufacturing [excluding palm oil] was the main source of weakness [in February], with exports falling by 10.6 percent yoy [as compared with -6.8 percent in January and -2.8 percent in December]," Leong said.
Source: http://www.thejakartapost.com/news/2015/03/17/surplus-trade-material-imports-manufacturing-dip.html