Bank Indonesia Expects Trade Surplus in March, Economists Predict Deficit
The central bank of Indonesia (Bank Indonesia) expects the nation’s trade balance to swing into surplus in March 2018, after recording two monthly trade deficits in January and February (USD $756 million and USD $116 million, respectively), as pressures from imports of raw materials and capital goods are seen sliding. Incumbent Bank Indonesia Governor Agus Martowardojo said a USD $1.1 billion surplus is possible in the third month of 2018, implying the trade balance would show a surplus, overall, in the first quarter of 2018.
However, the current account deficit of Indonesia (which is the widest measure for trade) is expected to widen to 2 percent of gross domestic product (GDP) in Q1-2018 as imports have been better than a year ago. Martowardojo added that Bank Indonesia is not concerned about the country’s current account deficit as long as it remains below 3 percent of GDP. Moreover, the recent surge in raw material imports is caused by rising demand from the manufacturing sector. This should be a good development as an expanding manufacturing industry boosts overall economic growth. For the long term, however, Martowardojo hopes that Indonesia will reduce its dependence on imports because this would cause a structural improvement for the nation’s current account deficit.
However, analysts do not agree with Bank Indonesia’s forecast for a big monthly trade surplus in March 2018. The consensus of ten economist, surveyed by Bloomberg, is that Indonesia saw another small trade deficit (approx. USD $100 million) last month. Most believe that Indonesia’s export performance weakened in March amid slowing manufacturing activity in key export markets such as China, Japan, India, ASEAN and the European Union. Meanwhile, imports are believed to remain around the same level as in the preceding month. Although Indonesia’s manufacturing activity fell in March (implying falling demand for imports of raw materials), imports of capital goods remain strong due to investment.
If the consensus is correct and Indonesia will indeed see another small trade deficit in March, then the Q1-2018 current account deficit is likely to be pushed beyond the 2 percent of GDP level.
Meanwhile, Bhima Yudhistira, economist at Indef, also expects to see a small trade deficit in March. But contrary to the consensus of the ten economists, he believes key export markets will require more raw materials from Indonesia as manufacturing output traditionally rises in these key export markets in the March-April period (USA, China, India and Europe). Hence, Indonesian exports tend to rise accordingly in the March-April period. However, Indonesia’s improving exports will not be enough to turn the monthly trade balance into a surplus in March. It will only result in a lower monthly deficit. Yudhistira added that the rising amount of imports of capital goods and raw materials into Indonesia in Q1-2018 is a good sign as it is a sign of an improving domestic manufacturing industry as well as improving household consumption.
Later today the official March trade data will be released by Indonesia's Statistics Agency (BPS).
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