But new order growth gains further momentum in May giving manufacturing a boost, reports Team IFM
Jakarta, June 9: Indonesia’s balance of trade in April recorded a deficit of $1.96 billion thanks to weakening overseas orders, official data released this week showed, even as an independent survey report said new orders placed with manufacturers rose in May, marking an eight-month period of expansion.
BPS Publication, the national statistics agency, said the deficit came after Indonesia recorded a surplus of $670 million in the year-ago period.
The balance of trade performance was hit by non-oil and gas balance of trade in April, resulting in a sectoral deficit of $890 million, despite a lower deficit in oil and gas balance of trade compared to March, BPS said. In March, non-oil and gas recorded a surplus of $2.02 billion.
“A negative growth non-oil and gas export primarily happens to major natural-resource-based commodities, such as coal and vegetable oil, in line with the weakening demand from China and India,” BPS explained.
Meanwhile, manufacturers across Indonesia signalled a further improvement in operating conditions during May, said an HSBC survey report on Indonesia’s manufacturing sector.
“New export orders expanded, growth of overall new orders was also at a record high,” noted Su Sian Lim, ASEAN Economist at HSBC, adding domestic orders had propped up manufacturing.
Last month, Bank Indonesia, the central bank, noted that the first quarter growth had slowed due to a contraction in exports, stemming primarily from a ban on mineral ore exports and weaker demand from China, combined with lower government consumption.
“Nonetheless, household consumption and investment remained solid, thereby propping up economic growth in the reporting quarter,” Bank Indonesia said.
MANUFACTURING DELIGHTS
The HSBC survey data said as much. According to the report, rise in new orders led companies to scale up production, pushing the manufacturing PMI to its highest reading in the history of the series since its beginning in April 2011.
On the price front, both input costs and output charges increased at weaker rates that were also below their respective series averages.
Adjusted for seasonal factors, the HSBC PMI – a gauge of a sector’s performance – registered 52.4 in May, up from 51.1 in April and above the neutral 50.0 threshold for the ninth consecutive month.
“Furthermore, the latest reading indicated that operating conditions improved at the quickest rate in the survey history,” the report said. Concomitantly, factory output also rose in May. “Growth of production was solid and the joint-fastest in the series history, on par with October 2011,” it added.
Moreover, the latest increase ended a two-month sequence of reduction. New orders for manufacturers also rose further, marking an eight-month period of expansion. The pace of increase was the “most pronounced since data collection began”, HSBC said.
New business from abroad increased for the fifth successive month amid reports of higher demand from key export clients. Although slight, the rate of expansion was the fastest in one year.
“In the months ahead, a persistence of the trends seen in the May PMI would signal that the policy-induced slowdown in domestic activity is starting to bottom-out,” said HSBC economist Su Sian Lim.
APRIL DEFCIT
Explaining the April deficit, BPS said the oil and gas balance of trade also recorded a deficit, although this decreases to $1.07 billion from $1.35 billion the month before.
The decreasing deficit in oil and gas balance of trade was caused by increased contraction in oil and gas imports as compared to that of oil and gas exports, the data office said, and noted that according to Bank Indonesia, the April deficit followed the seasonal pattern, among others related to the increasing demand approaching the fasting month and Idul Fitr Day.
“This condition is predicted to improve as influenced by the increasing export activities in line with global economic recovery,” BPS said.
It also said the central bank was “confident” the total current transaction deficit in 2014 would fall below 3 percent of GDP.
TAPERING IMPACT
Following the quantitative easing announced last year, Indonesia became acutely vulnerable, along with four other “fragile” emerging markets – India, South Africa, Brazil and Russia.
Since then, like India, it has pulled back, thanks to a clutch of tightening measures, such as whittling down of fuel subsidies by 44 percent.
Last month, Bank Indonesia noted that the first quarter growth had slowed due to a contraction in exports, stemming primarily from a ban on mineral ore exports and weaker demand from China, combined with lower government consumption.
“Nonetheless, household consumption and investment remained solid, thereby propping up economic growth in the reporting quarter,” Bank Indonesia said.
The bank also decided to maintain its benchmark interest rate at 7.5 percent in an effort to keep the rate of inflation between 3.5-5 percent, as well as to reduce the current account deficit to a more sustainable level in 2015.
Such steps seem to have lessened worries around the largest ASEAN economy. According to Hayden Briscoe, an Asia Pacific Director at consultancy Alliance Bernstein, Indonesia today is “a brighter light” compared with other countries.
“They have gone a long way to improving their productivity,” Briscoe told CNBC.
The government, too, appears more confident about the future. “We’re no longer in the fragile five,” Indonesian Finance Minister Chatib Basri told CNBC, referring to the five emerging economies hardest hit by the tapering. “Money is flowing back to Indonesia,” he said.
The government of President Susilo Bambang Yudhoyono issued a $4 billion bond in January, the biggest US dollar bond sale in Asia since 1998. The country issued $2 billion of debt due in 10 years to yield 5.95 percent and $2 billion of securities maturing in 30 years at 6.85 percent.
“If investors still believe this country will exist in another 30 years, then it means the confidence is still there,” Basri told CNBC.