A surge in exports has pushed up Indonesia’s trade surplus in December to more than expected levels, manufacturing has picked up but inflation and currency worries remain, Team IFM reports.
Jakarta, February 3: Disaster-scarred Indonesia’s trade balance for December, buoyed by a stellar export show across segments including oil and gas, grew $1.52 billion surpassing expectations, government data released on Monday showed, while its manufacturing sector remained in expansion territory and an upbeat trade minister resigned to declare his bid for President in the elections starting in July.
In another development, inflation rate for January rose per expectations and topped 8 per cent, mainly on account of food supply disruptions due to floods and a sliding Indonesian rupiah, Asia’s worst-performing currency in the past 12 months.
The Indonesian archipelago has been struck by a series of natural calamities since last November –floods, landslides and volcanic eruptions – which have claimed over 50 lives and displaced more than 4,000; 16 people died after a volcano erupted three times on the island of Sumatra on Saturday.
To make matters worse, the rupiah last year had tumbled by 26 per cent against the dollar, and commodity exports fallen because of subdued global demand, which in turn had pushed up the current account deficit to $8.4 billion – or about 3.8 per cent of its GDP – in the third quarter.
In short, Indonesia has sorely been in need of some succour for some time now. Monday’s data from Badan Pusat Statistik, the country’s central statistical organisation, could provide just that. “Definitely, this is positive for sentiment in the markets,” Reuters quoted Gundy Cahyadi, an economist at DBS Bank in Singapore, as saying.
Trade Balance
The trade balance rose unexpectedly; according to the CSO data, exports ballooned to $16.98 billion in December, a 6.56 per cent increase over that of November and a 10.33 per cent rise year-on-year.
And, contrary to forecasts, the trade surplus was $1.52 billion in December compared to the $789 million notched the month before. Analysts expected a surplus for the third consecutive month, but while a Reuters’ poll of economists had pegged it at $550 million, another by the by The Wall Street Journal was more generous at $729.5 million.
Ironically, even the Indonesian Finance Minister Chatib Basri, as recently as the end of last week, had banked on improved exports in the non-oil & gas sector to predict a monthly trade surplus of about $800 million, about half of what was actually achieved.
The surge, as predicted by Basri, was led mainly by the non-oil and gas sector which expanded over $407 million or 3 per cent over November to $13.58 billion, while oil and gas skyrocketed more than 23 per cent in December to touch $3.41 billion.
For the year, exports fell 3.92 per cent to $182.5 billion, and imports 2.6 per cent to almost $186.7 billion.
Thanks to some policy tightening since June 2013, the government of President Susilo Yudhoyono has managed to contain Indonesia’s current account deficit significantly, bringing it down from 4.4 per cent of the GDP in the second quarter of 2013 to between 3.0 and 3.5 per cent of GDP by 2013-end.
“It will be interesting how much of an impact this latest number will have on the current account data for 4Q13,” DBS Bank’s Cahyadi told Reuters. “We have forecasted current account deficit at 3.4 per cent of GDP in 2013, but now see some chance of it coming in slightly narrower than our expectations.”
Inflation
The government also released data on Monday that showed the consumer price index – CPI or simply the rate of inflation – rose 8.22 per cent in January year-on-year, mainly on account of food supplies getting disrupted due to floods that followed torrential rains since November.
This is the seventh straight month that it has stayed up over the 8 per cent-mark, and is consistent with a Reuters poll of economists that projected a rate of inflation of 8.38 per cent.
Core inflation, which doesn’t take into account volatile food prices, rose 4.53 per cent in the period under review over January 2013. This has primarily been on account of the weakening of the rupiah.
A report on Sunday by financial services and news provider Bloomberg said Asian currencies declined last week for the third week in a row, the slide being led by the Thai baht and Malaysia’s ringgit, amid concerns of a slowdown in China and US stimulus cuts.
The rupiah fell 0.3 per cent to 12,210 to a dollar, Bloomberg said, and threatened to stoke inflationary trends. It is also the worst-performing currency in Asia in the past year while the country’s inflation is the fastest spiralling in Southeast-Asia.
So much so, of late, concern is now not so much over Indonesia’s trade balance as to its capital outflows amid the US Federal Reserve’s decision to “taper” its quantitative easing programme.
Manufacturing
The manufacturing sector, however, brought cheer as it remained in expansion territory in January, while export orders rose for the first time since May 2013.
The HSBC Indonesia Purchasing Managers’ Index (PMI) registered 51 in January, up from December’s 50.9 and above average. “The latest reading pointed to a slight improvement of manufacturing operating conditions across Indonesia,” HSBC said in a release.
Boosting the PMI was a rise in incoming new orders placed with Indonesian manufacturers, the increase being for the fourth successive month in January. Export orders also rose, with new contracts being sealed with clients in Asia, Europe and North America. Although marginal, HSBC noted, the latest increase in export orders ended a seven-month sequence of contraction.
However, Su Sian Lim, ASEAN Economist at HSBC, expressed concern over the “moderate improvement” in the PMI. “Bank Indonesia’s policy tightening efforts since May 2013 may not be working as expeditiously as hoped for. In particular, the surge in January new orders appeared to be driven by domestic rather than external demand, with new export orders still sluggish,” she said.
“Manufacturers also continue to pass on higher costs to consumers, resulting in a rise in factory gate prices.”
Presidential Polls
Meanwhile, Indonesian Trade Minister Gita Wirjawan has resigned to project himself as the next president, elections for which start in July.
Wirjawan has begun campaigning to be the Democratic Party’s candidate.
However, the coming elections have not affected consumer confidence, market tracker Nielsen said last week. The nation’s consumer confidence index is at 124, up from 117 in the corresponding period the previous year, according to the “Nielsen Global Survey of Consumer Confidence and Spending Intentions”, conducted in August-September last year.
A score above 100 indicates optimism, and anything below that indicates pessimism, Nielsen says.
“Indonesians express concern around political stability with the prospect of the coming elections, and this may continue for 2014,” said Catherine Eddy, managing director at Nielsen Indonesia, in a statement released last Thursday in Jakarta.