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Trade Outlook

Trade Outlook Mei 2017
May 10, 2017 14:42 WIB

April Outlook: Remaining Firm

After Indonesia’s trading activities weakened in February, they increased in March 2017. Exports and imports jumped on both a monthly and annual comparison: exports grew 15.7 percent mom (+23.5 yoy) to US$ 14.6 bn, while imports grew at an even brisker pace of 17.6 percent mom (+18.2 % yoy) to US$ 13.4 bn. As a result, the trade surplus reached US$ 1.2 bn in March – its third consecutive monthly surplus. As such, in Q1 2017, the trade surplus reached US$ 3.9 bn, or double the trade surplus in Q1 2016 of US$ 1.6 bn.

The higher imports in March were due to higher volume shipments (+26.3% mom, +10.2% yoy). By comparison, the average prices of Indonesia’s exports actually declined on a monthly basis, although on a yearly basis they still rose (-8.4% mom, +12.1% yoy). Among the country’s non oil and gas exports, the exports of mineral fuel (HS 27), rubber and rubber products (HS 40) and electric machine/tools (HS 85) increased further. These three product types accounted for 24.9 percent of Indonesia’s non oil and gas exports by value. By destination country, the value of non oil and gas exports to Indonesia’s top trading partners rose in March. Shipments to China, the U.S., Japan and India climbed 31.3% mom, 11.0% mom,
33.9% mom, and 4.8% mom, respectively.

As for imports, they were lifted by both higher average prices (+10.3% mom) and higher volume shipments (+6.6% mom). Compared to March 2016, however, imports volume was still 5.6 percent lower. All of the main non oil and gas imports - mechanical machinery/tools (HS 84), electrical machinery/tools (HS 85), and plastics and plastics products (HS 39) were higher in value terms. By country of origin, the imports from Indonesia’s main trading partners (which comprise a 44.2% share) rose as well. The imports of non oil and gas products from China, Japan and Thailand strengthened by 46.4% mom, 11.4% mom, and 7.1% mom, respectively. By type of use, the imports of all product types rebounded on a monthly basis. The imports of raw materials, capital goods, and consumption goods rose by 13.3 percent, 18.8 percent, and 58.2 percent, respectively.

The current developments indicate that the economic conditions of Indonesia’s main trading partners are generally improving. The U.S. economy is still posting moderate growth, while China’s growth momentum is strengthening. The Japanese economy, meanwhile, is set to grow moderately.

The U.S. economy has expanded steadily this year. The latest data shows that Q1 2017 GDP expanded by 1.9% yoy, slightly lower than in Q4 2016 (+2.0% yoy), but faster than in Q1 2016 (+1.6% yoy). In the expenditures component, personal consumption-PCE (+2.8% yoy), gross private domestic investment (+2.0% yoy), exports (+3.1% yoy), and imports (+3.8% yoy) accelerated, while government expenditure contracted by 0.6% yoy. The outlook for the manufacturing sector deteriorated slightly: the April ISM manufacturing index fell to 54.8 from 57.2 in March, driven by slowing growth of new orders and employment, while new export orders and production accelerated further. On the consumer side, households expressed less optimism toward the short-term business and employment outlook. The consumer confidence index dropped to 120.3 in April from 124.9 in March. Despite April’s decline, households remain confident that the economy will continue to expand in the months ahead. Consumer purchases showed strength, since the retail sales of goods and services maintained its yearly gain (+5.2% yoy).

In Q1 2017, China’s economy improved. China’s GDP grew by 6.9 percent yoy, or above the 6.8% percent expansion observed in Q4 2016 and the government’s growth target of 6.5 percent in 2017. The acceleration was driven by expanding investment growth. The official Purchasing Managers’ Index (PMI) eased to 51.2 in April from 51.8 in March, since employment, output, new orders and export orders expansion decelerated. However, this index still remains above the 50-point mark that separates growth from contraction on a monthly basis. Meanwhile, China’s consumer spending and prices softened. Retail sales in March increased by 10.9 percent yoy (+0.84% mom), as sales of automotive products rebounded and sales of garments and home appliances grew at a faster rate. Consumer prices fell further on a monthly basis, and rose less briskly than they did a year ago (-0.3% mom, +0.9% yoy).

Japan’s economic recovery continues at a moderate pace. Both the CEI (+4.2%) and LEI (+5.8%) grew at a faster rate, indicating further improvements in the economic outlook. On the manufacturing side, the April Nikkei Manufacturing Purchasing Managers’ Index (PMI) rose to 52.8 from 52.4 in March, supported by rising output, new orders and employment. On the consumer side, household spending stabilized while consumer prices lacked upward momentum. Retail sales grew by 0.2 percent mom (+2.1% yoy) in March, the same as in the previous month. In the same period, consumer prices fell on a monthly basis and eased on a yearly comparison (-0.1% mom, +0.2% yoy). Prices in the food and transportation component slowed, while the cost of housing declined further.

In the latest update, the U.S. administration unveiled proposals for changes in tax plans. Under the proposed system, there will be a reduction in the number of tax brackets, from seven brackets to only three brackets. Businesses would enjoy a reduction in the tax rate from 35 percent to 15 percent. The details, however, remain unclear, and the proposal still needs to be debated and voted on by Congress before it becomes law. Expansionary fiscal policies could provide a significant boost to the U.S. economy going forward, and if GDP continues to increase, the Fed will likely raise the FFR again in the future. In May 2017, the Fed held the FFR target range at 0.75%-1.00%. The decision came as labor market conditions remain buoyant despite slower economic growth. Household spending rose modestly and inflation rose close to the Fed’s 2 percent longer-run objective. In China, meanwhile, the People’s Bank of China (PBOC) increased the short-term interest rate further in early March 2017. The central bank raised the rate of 7-day, 14-day and 28-day reverse repurchase agreements (repo rates) by 10 basis points each to 2.45 percent, 2.6 percent and 2.75 percent, respectively, a sign of gradual tightening. Elsewhere, in Japan, monetary policy continues to be eased. The Bank of Japan (BOJ) maintained a negative interest rate of minus 0.1 percent on the Policy-Rate Balances in current accounts held by financial institutions at the bank. The BOJ also decided to maintain its 10-year government bonds yield target at around zero percent.

Indonesian economy grew by 5.01 percent yoy in the first quarter of 2017, faster than that in Q4 2016 (+4,94% yoy) and Q1 2016 (+4,92% yoy). In the expenditures component, households consumption (+4,9% yoy), and government expenditure (+2,71% yoy) slowed, while investment (+4,81% yoy), and exports (+8,04% yoy) accelerated. For price developments, consumer prices rose 0.09 percent in April (+4.17% yoy), stemming from higher pressure in the housing (+0.93% mom), clothing (+0.49% mom) and transportation (+0.27% mom) components, while the cost of basic foodstuffs fell (-1.13% mom). On the monetary side, BI maintained its benchmark rates at current levels. The BI 7-day Reverse Repo rate was unchanged at 4.75 percent, with the Lending Facility rate and Deposit rate unchanged at 5.50 percent and 4.00 percent, respectively. At the same time, the rupiah strengthened (+0.25% mom), following 0.01 percent mom depreciation in March.

In view of the latest developments, we expect Indonesia’s exports to reach US$ 13.9 bn in April 2017, with imports reaching US$ 13.8 bn. This will translate into a trade surplus of US$ 150.7mn in April 2017.

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Business Sentiment Survey Aug 2016
August 04, 2016 15:05 WIB

Business sentiment weakened in our latest survey, snapping its firm uptrend which had begun in August- eptember 2015. In our April-May 2016 survey, the Business Sentiment Index (BSI) dropped 8.5 percent to a level of 122.2.

Nonetheless, the decline in the BSI does not yet constitute a break from its strong upward trend seen this year. Indeed, catalysts such as the government’s groundbreaking tax amnesty ruling and expected recovery in domestic consumption in the second half of the year could quickly help restore the BSI’s upward momentum.

CEOs continued to claim that corporate performance remained fairly sluggish. Most notably, the index measuring sentiment toward sales growth dropped a further 6.3 percent to 94.8. And at the bottom line, profits growth was similarly anemic (this index sank 6.6 percent to 93.6), constricted by high operating costs.

Looking forward, CEOs were less sanguine on Indonesia’s economic outlook over the next six months. As a result, only 38.6 percent of CEOs are now upbeat on the economy, down from 47.6 percent in the previous survey.

More encouragingly, business confidence toward the government improved further. In our survey, the Business Confidence in the Government Index (BCGI) eked out a small 1.9 percent gain to 141.0. 

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Trade Outlook Mei 2016
May 12, 2016 09:30 WIB

March’s trade surplus narrowed to US$ 497 mn from US$ 1.1 bn in February 2016, reflecting both slowing exports growth and faster imports growth. Exports reached US$ 11.7 bn (+4.3% mom, -13.5% yoy), exceeding imports of US$ 11.3 bn (+11.0% mom, -10.4% yoy). Non oil and gas trade remained in surplus (US$ 797.7 mn),offsetting the US$ 300.7 mn oil and gas trade deficit. Year-to-date, Indonesia has posted a US$ 1.6 bn trade surplus, albeit lower than last year’s surplus of US$ 2.3 bn.

Exports volume rose 11.1% mom while average prices, by contrast, fell 6.2% mom. Looking at the top non oil and gas products, the exports of animal or vegetables fats (HS 15) and jewelry (HS 71) fell, while exports of mineral fuel (HS 27) still grew. By destination country, the value of non oil and gas exports to China (+6.9% mom) and the U.S. (+9.2% mom) rose, while they fell to Japan (-3.8% mom).

For imports, higher imports value owed to increasing volume shipments (+11.1% mom). Average prices were flat (-0.1% mom). For the non oil and gas imports, imports of mechanical machines/tools (HS 84), electrical machines/tools (HS 85), and plastic (HS 39) rose by 5.9%, 7.6%, and 16%, respectively. By country of origin,
imports of non oil and gas products from China were down by 6.2% mom. By contrast, imports from Japan (+5.5% mom) and Thailand (+7.8% mom) posted increases. Imports from China and Japan accounted for the largest share of Indonesia’s non oil and gas imports at 25.4% and 10.7%, respectively.

By classification of use, imports of capital goods and consumption goods declined by 5.5 percent and 2.8 percent, respectively. By contrast, imports of raw materials climbed 16.9 percent mom.

The latest economic data reveals that the economy of one of Indonesia’s largest trading partners - the U.S. - grew at a moderate pace, while the performance of the economies of China and Japan were less impressive. Global demand is predicted to remain soft. On a more positive view, the average prices of Indonesia’s major
commodity exports strengthened (+2.5% mom) with global oil prices rebounding (+21.1% mom). As such, Indonesia’s exports value is likely to head higher going forward.

The U.S. economy reportedly grew by 2.0% yoy in Q1 2016, slower than in Q1 2015 (+2.9% yoy) but the same as in Q4 2015. In more detail, growth weakened in personal consumption expenditures - PCE (+2.7% yoy), exports (+0.3% yoy), and imports (+1.2% yoy). Meanwhile, fixed investment contracted (-0.1 % yoy) and government expenditures expanded (+1.4% yoy). The U.S. CEI and LEI indicate improving conditions. For manufacturing, the latest composite PMI (PMI=50.8) declined in April, indicating softer industrial activity. On the consumer side, the strong labor market and income conditions kept households confidence buoyant. Given the only moderate pace of economic recovery, the Fed decided to maintain the target range for the federal funds rate at 0.25 – 0.50 percent.

The latest economic data suggests that China’s economy is gradually recovering on the back of improvements in investment and domestic demand. The CEI and LEI have rebounded in the last several months, indicating potential economic expansion in the 6-12 months ahead. On the manufacturing side, the official PMI fell slightly to 50.1, yet remaining above the threshold level, as production and new orders decreased in April. On the domestic demand front, robust household consumption was reflected in strong retail sales growth. In March, retail sales edged up 0.85 percent mom (+10.5% yoy).

The Japanese economy isn’t showing a significant improvement. The CEI growth is flat, while the LEI growth contracted, suggesting a slowing recovery in the Japanese economy. A strengthening yen continues to weigh on exports and industrial activity. Japan’s PMI dipped to 48.2 in April from 49.1 in the previous month, suggesting a contraction in manufacturing. New export orders and production both declined. In regard to flat economic performance and weaker manufacturing activity, the Bank of Japan’s decision to not expand its monetary stimulus came as a surprise. On the domestic demand front, March’s retail sales were still weak (+1.4% mom, -1.1% yoy) and consumer prices remained subdued (+0.1% mom, -0.1% yoy). Food prices eased while transportation and housing costs declined further.

In Indonesia, the latest CEI and LEI suggest that economic activity improved further. In Q1 2016, Indonesia’s GDP grew by 4.92 percent yoy, faster than in Q1 2015 (+ 4.73% yoy) sustained by firm domestic demand and investment. On the expenditures side, households consumption (+4.94% yoy), gross fixed capital formation (+5.57% yoy), and government consumption (+2.93% yoy) expanded, while exports contracted (-3.88% yoy). Of the top 5 sectors, manufacturing sector growth reached 4.59% yoy, the agriculture, forestry and fisheries sector +1.85% yoy, the wholesales and retail trade sector +4.04% yoy, and the construction sector (+7.87% yoy. The mining & quarrying sector, however, still contracted (-0.66% yoy). On the monetary side, Bank Indonesia left its benchmark rate unchanged at 6.75 percent, with the Lending Facility and the Deposit Facility rate stayed at 7.25 percent and 4.75 percent, respectively. Stable inflation, lower interest rates, and brighter economic prospects boosted the average USD/IDR rate (+0.15% mom). Meanwhile, stronger consumer and business sentiment suggest brisker economic activities, which, in turn, would lead to higher imports.

In view of the latest developments, we expect Indonesia’s exports to reach US$ 11.5 bn in April 2016, with imports reaching US$ 11.9 bn. This will translate into a trade deficit of US$ 436.8 mn in April 2016.

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Forecast For Aug 2016

Exports US$ 10.40 bn
Imports US$ 10.20 bn
Trade Balance US$ 0.25 bn

Forecast for 2016

Exports US$ 148.50 bn
Imports US$ 147.20 bn
Trade Balance US$ 1.30 bn

DRI Forecast for Jan 2017

MoM(%) 0.74
YoY(%) 3.26

End of period(% p.a) 4.75

Forecast for 2016

Inflation(%) 3.30
SBI(% p.a) 4.75