5/12/2015
Indonesia / GDP
Indonesia’s export and import growth are both expected to be in the negative again in April. There is little sign of a sharp turnaround on the horizon.
Indonesia’s April trade data is due later this week. We expect the trade balance to be back in deficit after recording a surplus in the past four months. More importantly though, both export and import growth are likely to remain deep in the negative.
Total export growth may shrink to the tune of 4% this year, based on its poor performance so far this year. While market sentiment received a lift following the US$2.5 billion trade surplus recorded in the March quarter, export growth is still trending at around minus 10%. The economy is moving away from its overreliance on commodities, but the transition will take time. In the meantime, relatively low commodity prices will continue to weigh on overall export growth. A weaker Indonesian rupiah may help to bolster non-commodity export growth but given that global growth is tepid, any impact may be limited this year.
Meanwhile, the sustained slide in import growth could spell a bigger problem going forward. Import growth is trending at about minus 15%, dragged down mostly by capital goods imports. This could be a concern for production capabilities in the longer term. Other than the general moderation in domestic demand, weak sentiment on the rupiah also means any sharp turnaround is unlikely in the near term. Arguably, the fall in imports was partly engineered to narrow the current account deficit. Calling for monetary policy loosening at this juncture may prove to be premature though. Near-term inflationary risks are back in the picture and a policy rate cut may undermine the central bank’s credibility.
As far as GDP growth momentum is concerned, we reckon that the onus lies with the government going forward. The government has room to run a bigger fiscal deficit this year in order to support GDP growth.
