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Trade Outlook

Trade Outlook Agustus 2018
August 10, 2018 10:11 WIB

Indonesia’s foreign trade was lower in June 2018, affected by fewer working days due to the lengthy Idul Fitri holidays. Both exports and imports contracted on a monthly basis, yet still rose on a yearly comparison. Exports reached US$ 12.9 bn (-19.8% mom, +11.5% yoy) while imports totalled US$ 11.3 bn (-36.3% mom, +12.7% yoy). As a result, Indonesia recorded a sizeable trade surplus of US$ 1.74 bn, stemming from a US$ 2.14 bn non oil and gas surplus. The oil and gas account still posted a deficit of US$ 0.39 bn. Year-to-date, Indonesia’s foreign trade posted a US$ 1.02 bn deficit. This compares to a surplus of US$ 7.66 bn in the same period last year.

Oil and gas exports (+4.7% mom) reached US$ 1.7 bn, while non oil and gas exports (-22.6% mom) amounted to US$ 11.3 bn. The decline in exports reflects both lower exports volume (-4.3% mom, +24.1% yoy) and lower average prices (-16.2% mom, -10.2% yoy). By product type, the exports of Indonesia’s top non oil and gas products were mixed. The exports of mineral fuel (HS 27) increased, whereas the exports of machinery and electrical appliances (HS 85), vehicles and parts (HS 87) and rubber (HS 40) declined. By destination country, the value of non oil and gas exports to China, Japan and the U.S dropped by 1.9%, 11.9%, and 27.9% mom, respectively.

Oil and gas imports (-26.1% mom) and non oil and gas imports (-38.2% mom) dropped to US$ 2.1 bn and US$ 9.1 bn, respectively. Although the volume shipments of imports contracted (-37.8% mom, -7.5% yoy), the average prices were still higher on a monthly comparison (+2.4% mom, +21.8% yoy). By product type, Indonesia’s main non oil and gas imports declined. Imports of machinery and mechanical appliances (HS 84), machinery and electrical appliances (HS 85) and iron and steel (HS 72) were lower. By country of origin, the imports of non oil and gas products from China, Japan and Thailand slumped by 50.3% mom, 35.6% mom, and 31.7% mom, respectively.

By type of use, the imports of raw materials, capital goods, and consumption goods fell by 35.2% mom, 37.8% mom, and 41.8% mom in June 2018. In the first half of 2018, raw materials accounted for 74.7 percent of the non oil and gas imports, followed by capital goods (16.1%) and consumption goods (9.2%).

Recent data indicates signs of moderating economic growth in Indonesia’s main trading partners. The U.S. has posted outstanding economic performance, while economic activity in Japan and China is stabilizing. Notably, in July 2018, the average prices of Indonesia’s major commodity exports contracted by 1.4% mom (having fallen in June by 3.2% mom). Meanwhile, global oil prices retreated by 6.3% mom.

The U.S. economy expanded by 2.8 percent yoy in Q2 2018, or faster than in both Q2 2017 (+2.1% yoy) and Q4 2017 (+2.5% yoy). Compared to Q2 2017, growth in the following components accelerated: personal consumption-PCE (+2.7% yoy), gross private domestic investment (+4.6% yoy), exports (+5.7% yoy), and government expenditure (+1.2% yoy). Meanwhile, the growth in imports eased (+4.4% yoy). On the manufacturing side, expansion eased in July 2018. The July ISM Manufacturing Index fell from 60.2 to 58.1, given slower growth in new orders, new exports orders, and production. On the consumer side, U.S. household optimism moderated. The consumer confidence index rose from 127.1 to 127.4 in July 2018. Consumer expectations toward labour market conditions eased, while assessments of current conditions improved. Consumer spending rose further in June. Following a 1.3% mom increase (+6.5% yoy) in May, retail sales edged up 0.5% mom (+6.6% yoy) in June, driven by strong demand for motor vehicles & parts, fuel, and building materials.

China’s economy lost some steam in the second quarter this year. In Q2 2018, China’s economy posted growth of
6.7 percent yoy, matching market expectations. It slowed compared to Q1 2018, and the growth was the weakest
since the third quarter of 2016. On the manufacturing side, the official NBS Manufacturing PMI in China dipped
to 51.2 in July from 51.5 in June 2018, or the lowest level since February 2018. The current PMI indicates stable
manufacturing activity since new orders and production output rose at a slower pace. On the consumer side,
household spending rebounded. In June 2018, monthly retail sales grew by 0.73% mom (+9.0% yoy) faster than
the 0.31% mom growth (+8.5% yoy) in May. Sales growth accelerated for garments, personal care products, jewelry, home appliances, and furniture. In regard to price developments, monthly deflation in June 2018 slowed to -0.1% mom (+1.9% yoy), after falling 0.2% mom (+1.8% yoy) in the previous month. On an annual basis, consumer prices remained steady, since prices in the food component and non food prices continued to increase.

The Japanese economy remain robust, since the CEI and LEI rose further by 1.0% and 2.2%, respectively, in May 2018. On the manufacturing side, the Nikkei Manufacturing Purchasing Managers Index (PMI) reached 52.3 in July, lower than June’s 53. This was the lowest reading since August 2017, driven by slowing output growth and falling export orders. On the consumer side, consumer spending strengthened on a monthly basis. In June, retail sales went up 1.5% mom (+1.8% yoy) following a 1.7% mom decrease (+0.6% yoy), in the previous month. June retail sales showed the strongest growth in the last 6 months. Sales of food and beverages, fuel, machinery, and general merchandise were higher. As for price developments, Japan’s inflation rate in June reached 0.1% mom (+0.7% yoy), stable compared to May. Headline inflation was unchanged, given slowing increases in prices in the food component, while prices in the transportation component accelerated. By contrast, prices in the housing component declined.

Inline with market expectations, the Fed maintained the target rate for the FFR at 1.75%-2.00% in its July meeting. The Fed stated that economic activity and the labour market continued to strengthen. Two more FFR hikes are on the table this year. Following the Fed’s move, the People’s Bank of China (PBOC) left its benchmark lending rate at 4.35 percent and its deposit rate at 1.50 percent. The 7-day reverse repo rate was also left unchanged at 2.55%, the 14-day tenor at 2.70%, and the 28-day tenor at 2.85%. In Japan, the Bank of Japan’s (BOJ) made no policy change. The key short term interest rate was maintained at minus 0.1 percent on the Policy-Rate Balances in current accounts held by financial institutions at the bank. In regard to its long term interest rate policy, the purchase of Japanese Government Bonds will continue in order to keep the 10-year JGB yield at around zero percent (an annual pace of 80 trn Yen).

Indonesia’s economic performance is improving. In Q2 2018, Indonesia’s GDP grew by 5.27% yoy, faster than the
growth in Q1 2018 (+5.06%) and Q2 2017(+5.01%). On the expenditure side, growth in the following components
accelerated compared to Q2 2017: household consumption (+5.14% yoy), government expenditure (+5.26% yoy),
exports (+7.70% yoy), and investment (+5.87% yoy). In terms of price developments, monthly inflation cooled from
0.59% mom (+3.12% yoy) in June 2018 to 0.28% mom (+3.18% yoy). In more detail, price changes in the food
component accelerated to 0.67% mom, while price changes in the non food component eased to 0.02% mom. July’s inflation rate reflects the normalization of prices following Idul Fitri and the start of the new school year. Prices in the transportation component fell by 0.65% mom, while education prices rose 0.83% mom. On the monetary side, Indonesia’s benchmark 7-day Reverse Repo rate stayed at 5.25 percent with the Lending Facility rate and the Deposit rate kept at 6.00 percent and 4.50 percent, respectively. BI stated that the unchanged interest rate was intended to ensure rupiah stability and help restore market confidence. Global financial uncertainty remains high due to escalating trade tensions. Indonesia’s economic growth is predicted to remain firm, while the inflation rate should stay in the targeted corridor and the current account deficit become more manageable. Meanwhile, the rupiah weakened further. In July 2018, the rupiah depreciated by 2.4% mom, or more than in the previous month (-0.07% mom). Year-to-date, the monthly average rupiah depreciation stands at 6.2 percent.

In view of the latest developments, we expect Indonesia’s exports to reach US$ 14.6 bn in July 2018, with imports reaching US$ 15.2 bn. This will translate into a trade deficit of US$ 594.3 mn in July 2018.

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July 2018 Inflation Outlook: Easing Pressure
August 01, 2018 10:36 WIB

Consumer prices edged up in June 2018 by 0.59% mom (+3.12% yoy). Prices accelerated in all components. Prices rose by 0.24% mom in the core component (vs 0.21% mom in May 2018), by 1.38% mom in the administered goods component (vs 0.27% mom in May 2018), and by 0.90% mom in the volatile goods component (vs 0.19% mom in May 2018).

Prices in most components rose at a brisker pace. Prices rose 1.50% mom in the transportation component as urban residents travelled back to their hometowns. Prices in the foodstuffs component (+0.88% mom), prepared foods component (+0.40% mom) and clothing component (+0.36% mom) accelerated on the back of stronger consumption. By comparison, prices in the other components were stable. Prices in the housing component rose by 0.13% mom, by 0.27% mom in the medical care component, and by 0.07% mom in the educational component.

For July, we forecast easing inflationary pressures as the seasonal impact from Idul Fitri is over. Prices in the foodstuffs, prepared foods, clothing and transportation components will return to normal, and dampen the inflationary pressure. By contrast, other factors which may create additional pricing pressure are the new school year on educational costs, and increases in nonsubsidized fuel prices. We estimate inflation of 0.17 percent MoM in July 2018, translating into YoY inflation of 3.08 percent.

Bank Indonesia held its benchmark 7-day Reverse Repo rate in July’s meeting at 5.25%, inline with market expectations. As such, the deposit facility rate and lending facility rate also stayed at 4.50% and 6.00%, respectively. Prospects of a global trade war coupled with more FFR hikes in the future created turbulence in the financial markets. As such, BI’s policy is consistent with creating rupiah stability. The central bank believes that Indonesia’s economic growth is still firm, supported by strong domestic demand. The inflation rate is expected to remain stable and the current account deficit more manageable. Against this backdrop, we project that Indonesia’s benchmark rate will stay unchanged over the near future.

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Trade Outlook Juli 2018
July 12, 2018 11:57 WIB

Exports and imports both rose in May 2018. Exports reached US$ 16.1 bn (+10.9% mom, +12.4% yoy) while imports totalled US$ 17.6 bn (+9.2% mom, +28.2% yoy). As a result, Indonesia posted a sizeable trade deficit in May of US$ 1.52 bn, owing to an oil and gas deficit of US$ 1.24 bn and a non oil and gas deficit of US$ 0.28 bn. Year-to-date, Indonesia’s foreign trade posted a US$ 2.83 bn deficit. This compares to a surplus in the same period last year of US$ 6.0 bn.

Oil and gas exports (+28.8% mom) reached US$ 1.6 bn, while non oil and gas exports (+9.3% mom) amounted to US$ 14.5 bn. The increase in exports reflects higher exports volume (+7.5% mom, +16.0% yoy) and higher average prices (+3.2% mom, -3.1% yoy). By product type, the exports of Indonesia’s top non oil and gas products were mixed. The exports of animal and vegetable fats, oil & waxes (HS 15) and rubber (HS 40) slumped, whereas the exports of machinery and electrical appliances (HS 85) increased. By destination country, the value of non oil and gas exports to China, Japan and the U.S strengthened by 15.4%, 0.5%, and 10.0% mom, respectively.

Oil and gas imports (+21.0% mom) and non oil and gas imports (+7.2% mom) increased to US$ 2.8 bn and US$ 14.8 bn, respectively. Although the average prices of imports contracted (-1.4% mom, +17.2% yoy), volume shipments were higher on a monthly comparison (+10.7% mom, +9.3% yoy). By product type, the performance of Indonesia’s main non oil and gas imports was also mixed. Imports of machinery and mechanical appliances (HS 84) and machinery and electrical appliances (HS 85) were higher, while imports of iron and steel (HS 72) were lower.
By country of origin, the imports of non oil and gas products from China and Thailand rose by 18.6% mom and 25.6% mom, respectively, while imports from Japan were 1.3% mom lower.

By type of use, the imports of raw materials, capital goods, and consumption goods rose further by 6.6% mom, 9.0% mom, and 14.9% mom in May 2018. In the period of January-May 2018, raw materials accounted for 74.5 percent of the non oil and gas imports, followed by capital goods (16.3%) and consumption goods (9.0%).

Recent data indicates signs of moderating economic growth in Indonesia’s main trading partners. The U.S. has posted stellar economic performance, while economic activity in Japan and China is stabilizing. Notably, in June 2018, the average prices of Indonesia’s major commodity exports contracted by 3.2% mom (having increased
in May by +1.7% mom). Meanwhile, global oil prices continued to strengthen by 6.6% mom.

The U.S. economy expanded by 2.8 percent yoy in Q1 2018, or faster than in both Q1 2017 (+2.0% yoy) and Q4 2017 (+2.6% yoy). Compared to Q1 2017, growth in the following components accelerated: gross private domestic investment (+5.8% yoy), exports (+4.0% yoy), imports (+4.4% yoy), and government expenditure (+1.2% yoy). Meanwhile, the growth in personal consumption-PCE eased (+2.6% yoy). On the manufacturing side, expansion continued in June 2018. The June ISM Manufacturing Index rose from 58.7 to 62.2 given stronger growth in new exports orders and production. On the consumer side, U.S. household optimism moderated.The consumer confidence index fell from 128.8 to 126.4 in June 2018. Consumer expectations toward both business and labour market conditions eased, while assessments of current conditions were unchanged. Consumer spending rose further in May. Following a 0.4% mom increase (+4.8% yoy) in April, retail sales climbed 0.8% mom (+5.9%
yoy) in May, supported by higher sales of fuel and motor vehicle & parts.

China’s economic outlook is improving, mainly driven by resilient domestic demand. On the manufacturing side,
however, the official NBS Manufacturing PMI in China dipped to 51.5 in June 2018 from 51.9 in the previous month. The current PMI indicates stable manufacturing activity since new orders and production output rose at a softer pace. On the consumer side, household spending grew at a slower pace. In May 2018, monthly retail sales grew by 0.29% mom (+8.5% yoy), less than April’s 0.66% mom growth (+9.4% yoy). Sales of garments, personal care products, and building materials rose at a slower pace. In regard to price developments, monthly deflation reached -0.2% (+1.8% yoy) mom in May 2018, following -0.2% mom deflation (+1.8% yoy) in the previous month. On an annual basis, consumer prices remained steady, since prices in the food component eased and non food prices only edged up.

The Japanese economy continues to improve. The CEI and LEI rose further by 0.4% and 2.2%, respectively, in May
2018. On the manufacturing side, the Nikkei Manufacturing Purchasing Managers Index (PMI) stood at 53.0 in June
2018, up slightly from May’s level of 52.8. Production and employment rose at a faster rate. On the consumer side, consumer spending weakened on a monthly basis. In May, retail sales dropped 1.7% mom (+0.6% yoy), after
increasing in the previous month (+1.3% mom, +1.5% yoy). Sales of general merchandise, apparel and motor
vehicles were lower. As for price developments, Japan’s inflation rate in May went up 0.1% mom (+0.7% yoy).
Headline inflation rose at a higher pace, given increasing prices in the food and transportation component, while
prices in the housing component declined.

Inline with market expectations, the Fed hiked the target rate for the FFR by 25 bps to 1.75%-2.00% in its June
meeting. The Fed stated that economic activity grew at a solid rate and that the labour market continued to
strengthen. Two more FFR hikes are on the table this year. In addition, the Fed also upgraded its US GDP growth
and PCE inflation forecasts. Furthermore, the unemployment rate is expected to be lower in 2018 and 2019.
Following the Fed’s move, the People’s Bank of China (PBOC) unexpectedly maintained its benchmark lending rate at 4.35 percent and its deposit rate at 1.50 percent. The 7-day reverse repo rate was also left unchanged at 2.55%, the 14-day tenor at 2.70%, and the 28-day tenor at 2.85%. In Japan, the Bank of Japan’s (BOJ) loose monetary policy remains in effect. The key short term interest rate was maintained at minus 0.1 percent on the Policy-Rate Balances in current accounts held by financial institutions at the bank. In regard to its long term interest rate policy, the purchase of Japanese Government Bonds will continue in order to keep the 10-year JGB yield at around zero percent (an annual pace of 80 trn Yen).

Indonesia’s CEI (+0.9%) and LEI (+0.9%) increased. This suggests that economic activity continues to gain some
traction. In regard to consumer prices, monthly headline inflation accelerated to 0.59% mom (+3.12% yoy) in June
2018, from 0.21% mom (+3.23% yoy) in the previous month. Prices in most components grew at a faster pace due
to Ramadan and Idul Fitri. More specifically, prices in the food component and the non food component rose by
0.66% mom and 0.57% mom, respectively. On the monetary side, BI raised its benchmark 7-day Reverse Repo rate
by 50 bps in the June meeting, following two separate hikes in May 2018. The rate now stands at 5.25 percent with the Lending Facility rate and the Deposit rate at 6.00 percent and 4.50 percent, respectively. The central bank stated that its policy is pre-emptive, front-loading, and ahead of the curve, and that it is intended to ensure rupiah stability given the prospect of more FFR hikes in the future, whilst also keeping inflation in the targeted corridor and the current account deficit more manageable. Meanwhile, the rupiah continued to weaken further. In June 2018, the rupiah depreciated by 0.07% mom yet less than in the previous month (-1.6% mom). Year-to-date, the monthly average rupiah depreciation stands at 3.6 percent.

In view of the latest developments, we expect Indonesia’s exports to reach US$ 13.5 bn in June 2018, with imports reaching US$ 13.0 bn. This will translate into a trade surplus of US$ 559 mn in June 2018.

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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

Inflation
MoM(%) 0.74
YoY(%) 3.26

SBI
End of period(% p.a) 4.75

Forecast for 2016

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