26th straight month of surplus
Statistics Indonesia recorded a higher trade surplus at USD5.09 bn in Jun-22. The surplus was well higher than our estimate at USD4.03 bn and consensus at USD3.46 bn. In Jun-22, the export increased by 21.3% MoM (40.7% YoY) or recorded USD26.1 bn of total export. The import also increased by 12.9% MoM (21.9% YoY) resulting USD21 bn of total import. The export soared due to lifted palm oil export ban in the end of May-22. Besides, the slower import was still associated with China’s as its economy shrank sharply in 2Q22 recording a 0.4% YoY (vs 4.8% YoY in 1Q22) of economic growth after several Covid-19 lockdowns.
Regaining surplus after the export ban
After several protests and moves applauded by farmers and slight improvements in domestic cooking oil supply, the government lifted its three-week-old CPO export ban from May, 23rd 2022. Thus, the CPO helped the trade balance to regain its big surplus as CPO contributed as much as USD2.74 bn (54% of trade surplus in Jun-22). To boost the export, the government plans to bring new levy and incentives. This is needed as the ballooning CPO inventories arose after the export ban imposed. In Jul-22, the government also has started to B35 program to absorb more domestic supply. However, for the export orientation, shipments are still under normal level as export permits are tied to the existing mandatory domestic sales to ensure the supply of cooking oil.
Significant jump from CPO export
Based on sector, all of sectors increased in monthly and yearly basis which manufacturing led the way by growing at 29.2% MoM (29.8% YoY) due to the CPO processed products. From the selected non-OG sector, the biggest jump of course came from Vegetable and Animal Fats (HS 15) at 300.7% MoM to USD3.38 bn supported by the CPO export. It also served as the second biggest export in Jun-22. The number one export (18.1% of total export) came from Mineral Fuel (HS 27) where it increased by 5.32% MoM to USD5.11 bn.
Expansive domestic manufacturer
All of imported goods based on the usage increased on monthly and yearly basis: consumption goods (12% MoM), raw material/intermediary goods (10.7% MoM) and capital goods (26.3% MoM). Although the IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) posted a lower figure, the domestic manufacturers were still able to expand the business. The index was down from 50.8 in May-22 to 50.2 in Jun-22 or still above the 50-threshold for 11th straight month, signifying the expansion. From the selected non-OG sector, the biggest contributor (15.3% of total import) came from Machinery (HS 84) where it increased by 27.9% MoM (21.8% YoY) to USD2.79 bn.
Lower import on meat
Previously, we predict the rising Foot and Mouth Disease on cows may lead to the higher meat import. Turns out, the import on Meat (HS 02) decreased by 40.7% MoM (+4.68% YoY) to USD83.6 mn. In May, Indonesia imported USD141.1 mn of meat where in normal condition, the meat import hovers under USD100 mn per month. Despite of the current disease on cows, we expect the supply of meat from May-22 was sufficient to sustain consumption in Jun-22. Besides, according to Indonesian Meat Importers Association (Aspidi), the import of meat was hampered by the scarcity of containers due to increased shipping times. Once the shipping issues have been solved, we expect in Jul-22 the meat import will grow again as the domestic demand is still rising under the current cow disease.
First policy rate hike under pandemic
The thick surplus is back and it serves as the cushion to current account deficit. With higher surplus, we expect Bank Indonesia (BI) will increase the BI-7DRRR by 25 bps to 3.75% on the next BoG Meeting in July, 20th – 21st 2022 to tackle the inflationary pressure that gets vivid.