Trade surplus hits the highest level since March
According to Statistics Indonesia (BPS), Indonesia's trade surplus jumped by +12.34% MoM to USD3.25 bn in Sep-24. Moreover, this figure surpass both our forecast of USD2.67 bn and the consensus estimate of USD2.79 bn. This is the highest trade surplus since March. Furthermore, Indonesia's foreign trade has been on the trade surplus trend since May-20, posting a trade surplus for 53 consecutive months. The trade surplus was mainly driven by a USD4.61 bn surplus in non-oil and gas (NOG) exports, which offset a –USD1.36 bn deficit in oil and gas (OG) exports. Furthermore, the high trade surplus is largely attributed to the low total imports of USD8.91 bn, hitting the lowest level since July and falling below both our and consensus expectation. Looking ahead, Global economic uncertainty continues to pose challenges for Indonesia's export performance. The weak economic outlook in key markets like China and Japan could dampen demand for Indonesian exports. Additionally, prolonged geopolitical tensions in the Middle East may disrupt international trade routes and global commodity supply chains, particularly in the energy sector. However, we anticipate that a more dovish interest rate stance from developed economies, especially the Fed, will support an economic recovery, which in turn should boost demand for Indonesian exports. Considering these factors, we project the current account deficit to reach -0.4% of GDP in 2024.
Weak US demand and CPO performance drags export decline
Total exports amounted to USD22.08 bn in Sep-24 (-5.80% MoM and +6.44% YoY), exceeding our projected estimate of +4.88% YoY but falling short the consensus estimate of +8.20% YoY. Breaking down the numbers, oil and gas (OG) exports decreased by -2.81% MoM and -16.74% YoY to USD1.17 bn in Sep-24, while non-oil and gas (NOG) exports amounted to USD 20.91 bn (-5.96% MoM but +8.13% YoY) in the same period. We attribute the decline in total exports to the performance of animal/vegetable fats and oils (HS15) mainly CPO, which fell by -16.91% MoM to USD1.98 bn, accounting for 10.18% of total exports. Additionally, the US experienced the steepest monthly contraction among export destinations, with a -15.00% MoM decline to USD2.22 bn. Indonesia’s manufacturing PMI rose slightly to 49.2 in Sep-24 from August’s near three-year low of 48.9. However, this marked the third consecutive month of decline in factory activity, as both output and new orders fell for the third straight month. Cumulatively, total exports increased by +0.32% YoY to USD192.85 bn in 9M24. China became the largest export destination, with exports reaching USD42.53 bn, contributing 23.48% to the total.
Import falls to the lowest level since July
Total imports reached to USD18.82 bn (-8.91% MoM but + 8.55% YoY) in Sep-24, marking its lowest level since July and falling both our forecast of +10.01% YoY and the consensus estimate of +12.50% YoY. OG imports decreased by -4.53% MoM and -24.04% YoY to USD2.53 bn, while NOG imports reached USD16.29bn (-9.55% MoM but +16.29% YoY). All import category decreased in Sep-24. Consumer goods imports declined by -6.37% MoM to USD126.0 bn, intermediate goods imports slipped by -9.69% MoM to USD13.43 bn, and capital goods imports shrank by -7.15% MoM to USD3.53 bn, respectively. China remained the largest source of imports at USD5.97 bn, accounting for 35.65% of total imports, but also recorded the steepest monthly contraction of -7.08% MoM. We attribute the weak import to fewer working days in September and a decline in oil price. The price of WTI crude oil decreased by -7.33% MoM and -9.20% YoY, to USD68.2/bbl in Sep-24.
Forex reserves slip despite strong trade surplus and rupiah strengthen
Indonesia's foreign exchange (Forex) reserves slightly declined to USD149.9 bn in Sep-24, down from a record high of USD150.2 bn in Aug-24, although trade surplus increase to highest level since March. This decrease was influenced by the government's external debt payments. However, the current reserve level is sufficient to cover 6.6 months of imports or 6.4 months of imports and government external debt servicing, significantly surpassing the international adequacy benchmark of 3 months. Despite the decline in reserves, the Rupiah appreciated by 2.0% MoM to Rp15,140/USD in Sep-24, while the trade surplus increased to its highest level since March. This appreciation was largely driven by a global dovish sentiment, especially the U.S. Federal Reserve's 50 bps rate cut, bringing its benchmark rate to 5.0%. Capital inflows into Indonesia's stock and bond markets amounted to USD 1.42 bn and USD 1.34 bn, respectively, in September. Looking ahead, the government must be prepared for potential global risks that could trigger capital outflows, such as geopolitical tensions in the Middle East and China's economic stimulus measures. Politically, investors remain cautious, awaiting the formation of Prabowo's cabinet and the outcome of the U.S. election. On a positive note, the Federal Reserve has signaled further rate cuts in the upcoming Federal Open Market Committee (FOMC) meetings in November and December 2024, each by 25 bps, potentially bringing the rate down to 4.5%.Taking these factors into account, we expect the Rupiah to be Rp15,350/USD in YE-24.
