Another Trade Surplus will Likely in June-21.
Indonesia has been successfully managed a trade surplus in the last 5 months amid slowing down of economic recovery due to Covid-19. The recorded cumulative trade balance from period of Jan-May 21 was USD10.17 bn. We expect June-21 figure will mark another trade surplus of USD2.08 bn with export grew 48.47% YoY, while import rose 46.27% YoY.
Rationale of Indonesia Trade Surplus for 1H21.
Trade surplus will be the key theme for 1H21 Indonesia international trade. As a commodity exporter country, Indonesia is benefitted by strong commodity price hikes. Combination of loose monetary policy, fiscal expansive, tightened supply as well as pent up demand seen in developed nations that already boost vaccine inoculation were the driving forces of price surge, let alone with some speculation on commodity futures market. We also can not deny that low based effect also playing role in the exports & imports surge.
Should We Worry about Rising Oil Price?
As we know after dropping to a negative territory for the first time in history for WTI in April 2020, oil price started to rise as lockdown eased in many countries. Besides that, OPEC+ policy to curb production also have a balancing impact to market supply & demand dynamic supporting price recovery.
However in our opinion, rising oil price to a more than two year high reaching to >USD70/barrel would only have a limited impact on inflation as the demand for fuel remained limited due to the implementation of public mobility restriction.
Solid Export Performance Supported Indonesia FX Reserves Position
Solid performance of Indonesia’s export also supported high FX reserves position, on top of government financing program through global bond issuance. As of June-21 the domestic FX reserves position increased by USD0.7 bn to USD137.1 bn or equivalent to finance 9.2 months of imports or 8.8 months of imports and servicing government foreign debt. We expect high FX reserves position can maintain rupiah’s stability although the domestic currency has depreciated against USD recently.
Can We Maintain Our Trade Balance Surplus?
If the economic condition in Indonesia’s trading partners such as U.S. and China continue to improve, we believe that export demand will likely to stay in place. We saw that Indonesia’s top-10 trading partners recorded a double digits on its industrial production figure, indicating positive sign of recovery. However with the stricter restriction (PPKM Darurat) imposed in Java & Bali will likely to derail domestic consumption thus limiting import demands. Therefore we are optimistic that trade surplus will not only a key theme for 1H21 but also big theme for 2021.
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