Narrowing trade balance in Dec-19, exceeding expectations
Dec-19 is the only month which successfully recorded positive growth on export within 2019 and the first increase in exports since Oct-18. It was way lower than our and consensus estimate at USD618.2 mn and USD422.0 mn of trade deficit. The trade balance showed a reversal effort from a serious deficit in the prior month though it still on the negative territory deficit at USD28.2 mn. The data completed the overall 2019 trade performance where the deficit was due to the deficit from oil and gas (OG) sector at USD9.3 bn (vs. surplus from non-OG sector at USD6.1 bn), causing the final trade balance at USD3.2 bn of deficit. Compared to 2018 where the deficit was USD8.5 bn, 2019 trade record revealed a better performance, eventually.
The first and the last positive export growth in 2019
As a net importer of oil, on OG sector, we recorded USD971.3 mn of deficit where the deficit was coming from the sluggish growth on export volume and the price itself as it can be seen in Exhibit 1. However, we are benefited from the price rise on some commodities such as crude palm oil (+12.67% MoM), rubber (+7.35% MoM), tin (+20.1% MoM) and gold (+3.74%). Those rises were important since the extractive industries contributed about 21% to Indonesia total export. Especially, the significant rise on CPO contributed to the biggest contributor of Indonesia export; animal/vegetable fats and oils where it contributed as much as 11.4% to total export. The positive growth on non-OG sector occurred on monthly (3.10% MoM) and yearly (5.78% YoY) basis. The biggest contributor on non-OG sector was animal/vegetable fats and oils where it grew by 25.8% MoM to USD2,063 mn. Meanwhile, the highest growth came from tin and articles thereof where it grew by 49.0% MoM. On sectoral basis, each of them (OG, agriculture, manufacture, mining and others) posted positive growth on monthly basis but only OG and mining sector that experienced negative growth on yearly basis. Not to mention the OG sector negatively grew by -31.9% YoY, the global economic downturn made Indonesia’s trading partners lose their power in importing our commodity. However, the ban on Indonesian exports benefited us as it sparked rush for nickel ore so the primary importer of our nickel, China, has imported it in 4Q19 for stockpiling.
Weak import allowing the low deficit
OG and non-OG sector grew negatively by -0.06% MoM and -6.35% MoM respectively. This brought overall import to fall by -5.47% MoM and -5.62% YoY. The falling import entrenched the lower deficit in Dec-19 and to 2019 level as well. Deeper on the use of the imported goods, the raw/intermediate goods was fall by -6.83% MoM and -7.27% YoY to USD10.4 bn. Based on the goods classification, machine and mechanical equipment were the highest contributor of import where it fall by -11.7% MoM to USD1,723 mn but still contributed as much as 13.3% to total import.
PMI and import
However, the threat of lower import is looming in near future. As figured in Exhibit 3, the low Purchasing Managers’ Index (PMI) is correlated with import change. Since PMI in Dec-19 was below its neutral level at 50 (49.5), it may explain why the import is slowing. The raw/intermediate goods import equals to 71.7% of total imported goods. Indonesia manufacture will import less due to some factors such as the weakening overall demand conditions and the sluggish sales that decelerated the accumulation of unsold stocks. The increasing stocks made the firms need to reduce its labor demand and its imported input purchases. Eventually, it will inflict the economy. However, the producers’ confidence increased to the highest level in last 6 months. Hope is still there.
Opportunity for rupiah and rate cut
The narrowing trade deficit brings positive sentiment on rupiah then it most likely becomes more preferable to hold. Through our technical analysis, the signal of rupiah slide to Rp13,535/USD or go back to 2Q18 level is quite strong. However, the estimation is still under our review, but for now we may expect in YE 2020, rupiah will reach Rp13,710/USD. Now, BI has wider room to have its first rate cut in 2020 in order to hold back the brisk appreciation. We expect a 25 bps cut will be taken in this 1Q20.