Statistics Indonesia (BPS) announced on Monday (15/02) that Indonesia's trade balance turned back into a (small) surplus in January 2016. In the first month of the year, Indonesia posted a trade surplus of USD $50.6 million, beating analyst forecasts. In the preceding two months the country had to cope with a trade deficit. After the news, Indonesia's currency appreciated markedly against the US dollar. However, on a year-on-year (y/y) basis Indonesia's exports and imports are still significantly down and there remains much cause for concern.

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Indonesian President Joko Widodo met Hungarian Prime Minister Viktor Orban in Jakarta on Monday (01/02) to discuss bilateral issues including trade and investment. High on the agenda was the topic of solar power. Reportedly, Hungary plans to invest USD $20 million for the construction of a 5 megawatt (MW) solar power plant in Central Tapanuli (North Sumatra). Other topics included the manufacturing sector, fishery sector, the digital economy, and the promotion of peace and stability.

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Per 1 January 2016 the ASEAN Economic Community (AEC) came into effect. This community implies stronger cooperation and integration among the ten member countries in Southeast Asia. According to its blue print the AEC involves the launch of a single market and production base among its member nations, hence allowing the free flow of goods, services, investment, and skilled labor as well as the freer flow of capital. Indonesia is one of the member countries.

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Indonesia posted a trade deficit of USD $230 million in December 2015 as imports (USD $12.12 billion) exceeded exports (USD $11.89 billion), the second monthly trade deficit in 2015. Overall, the country's trade balance shows a surplus of USD $7.51 billion in 2015, significantly improving from the USD $2.2 billion trade deficit in the preceding year. But despite posting a good trade surplus in full-year 2015, a closer look at the data still reveals weak global and domestic conditions.

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Economic turmoil that has pushed China’s growth to a 25-year low has a direct effect on Indonesia as China is the key trading partner of Indonesia. Concern about China’s economic slowdown (and the impact of this slowdown on the world economy) persist in 2016 as the country's Caixin/Markit manufacturing purchasing managers' index (PMI) contracted for the 10th straight month in December 2015 (at 48.2), while the services reading for December fell to a 17-month low (50.2).

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Indonesia posted an unexpected USD $346.4 million trade deficit in November 2015 according to the latest data from Statistics Indonesia (BPS) released on Tuesday (15/12). It was the country's first trade deficit so far in 2015 as exports fell faster - while imports declined slower - than initially estimated. Indonesian exports fell 17.6 percent year-on-year (y/y) to USD $11.16 billion in November, while imports declined by 18.0 percent (y/y) to USD $11.51 billion. Both the oil & gas and the non-oil & gas balances were in deficit.

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The terrorist attacks in Paris last week are not expected to jeopardize Indonesia's trade with France or the European Union. France is expected to tighten the flow of people, but not the flow of goods after the terrorist attacks on Friday (13/11) that led to the deaths of at least 129 people as well as hundreds of injured people. In 2014 trade between Indonesia and France totaled USD $2.35 billion, down 11 percent from the preceding year. Indonesian exports to France stood at USD $1.02 billion (exports only involved non-oil & gas products), while Indonesia's imports from France stood at USD $1.33 billion in 2014.

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For the eleventh consecutive month Indonesia posted a trade surplus. With exports reaching a total of USD $12.08 billion, while imports were USD $11.07 billion, the country posted a USD $1.01 billion trade surplus in October, the country's statistics agency (BPS) stated on Monday (16/11). The surplus was larger than expected due to a sharp drop in imports. Although the trade surplus is good news as it supports the value of the rupiah and helps to curtail the country's current account balance, there remain concerns about rapidly plunging exports and imports.

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The current account balance of Indonesia improved due to the stronger non-oil & gas trade balance. Indonesia's current account deficit eased to USD $4.0 billion, or 1.86 percent of the country's gross domestic product (GDP), in the third quarter of 2015. This performance was much better than the USD $7.0 billion deficit (3.02 percent of GDP) recorded in Q3-2014 or USD $4.2 billion (1.95 percent of GDP) in Q2-2015. Meanwhile, the balance of payments showed a deficit of USD $4.6 billion, up from the deficit of USD $2.93 billion in the preceding quarter.

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US-based bond credit rating agency Moody's Investors Service said it would be credit-positive for Indonesia's sovereign credit rating to join the Trans-Pacific Partnership (TPP) trade deal as participation would mitigate the negative effects of sluggish commodity prices on Indonesia's export performance. Through the TPP, which is one of the world's most ambitious trade deals covering an area that accounts for about 40 percent of world trade, Indonesia will expand its export base, Moody's wrote in a recent report.

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On Thursday 12 June 2014 it was decided at the central bank’s Board of Governors’ Meeting to maintain the country’s benchmark interest rate (BI rate) at 7.50 percent, with the Lending Facility rate and Deposit Facility rate held at 7.50 percent and 5.75 percent, respectively. This decision is consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce Indonesia’s current account deficit to a more sustainable level.

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Today (02/06), Statistics Indonesia released various important economic data that provide more insight into the state of the Indonesian economy. Two of these indicators - inflation and trade - are discussed in this column. Head of Statistics Indonesia Suryamin announced that inflation in May 2014 rose by 0.16 percent (slightly higher than previously expected), while the April 2014 trade balance of Indonesia recorded a USD $1.96 billion deficit. These data were not well received by the market, evidenced by sharp rupiah depreciation.

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The rate of inflation in March 2014 demonstrated that the ongoing downward trend persists. In the reporting month of March 2014, inflation was recorded at 0.08 percent (month-to-month) or 7.32 percent (year-on-year), down from the rates recorded in the previous two months at 1.07 percent (mtm) or 8.22 percent (yoy) in January and 0.26 percent (mtm) or 7.75 percent (yoy) in February. The declining inflation trend is further evidenced by a lower rate recorded in March 2014 than the historical average over the past six years at 0.24 percent (mtm).

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Although Indonesia is the world's largest archipelago, contains an abundance of commodities and has the world's fourth-largest population, the country's export and import figures are still small compared to the world's leading exporting and importing countries (see table below). There are many - and much smaller - countries that post much more impressive import and export data. In terms of exports, Indonesia is too dependent on commodities (accounting for around 60 percent of all exports) causing problems in times of price downswings.

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Fitch Ratings, one of the three major global credit rating agencies, estimates that Indonesia's current account deficit will reach USD $27.4 billion, equivalent to 3.1 percent of the country's gross domestic product (GDP) in 2014. As such, Fitch Ratings' forecast is more pessimistic than forecasts presented by both Indonesia's central bank (Bank Indonesia) and government. Both these institutions expect to curb the current account deficit below the three percent of GDP mark (a sustainable level). Global investors continue to carefully monitor the deficit.

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The Indonesian rupiah exchange rate appreciated 0.14 percent to IDR 11,581 per US dollar on Wednesday based on the Bloomberg Dollar Index. The currency is now at its strongest level since 25 November 2013 as it regained trust of international investors. In 2013, the rupiah weakened sharply after speculation emerged that the Federal Reserve would scale back its quantitative easing program. In combination with the country's record high current account deficit and high inflation it led to large capital outflows from Southeast Asia's largest economy.

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The central bank of Indonesia (Bank Indonesia) believes that the USD $430 million trade deficit that was recorded in January 2014 is a normal result taking into account the implementation of the ban on exports of unprocessed minerals (which reduces exports of materials such as copper and nickel) and seasonal trends as exports are always lower in January than in December due the end of winter peak demand for raw materials and ongoing contractual negotiations at the beginning of each year.

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The rate of Indonesian inflation eased in February 2014. Inflation decelerated in February 2014 to 0.26 percent (month-to-month) or 7.75 percent (year-on-year), down from the previous month at 1.07 percent (mtm) or 8.22 percent (yoy) respectively. The drop in the inflation rate is attributable to central and local government policy taken to minimize the second-round effects of recent natural disasters, thereby bringing the inflation of volatile foods in the reporting month to just 0.32 percent (mtm) or 9.85 percent (yoy).

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The Indonesian rupiah exchange rate had depreciated (0.15 percent) to IDR 11,665 per US dollar on Thursday (27/02), 15:00 local Jakarta time, based on the Bloomberg Dollar Index. Governor of Bank Indonesia Agus Martowardojo stated yesterday to expect the currency to stabilize near current levels in line with its economic fundamentals ahead of looming further Federal Reserve tapering. Analysts estimate that Indonesia's trade balance might deteriorate in January 2014 as the impact of the mineral-ore export ban kicks in.

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The current account deficit of Indonesia is expected to ease further in the first quarter of 2014 due to a possible slowdown of imports according to Deputy Finance Minister Bambang Brodjonegoro. This slowdown is estimated to be caused by the implementation of Indonesia's higher income tax on the import of durable consumer goods, effective from January 2014. However, the deficit will not ease markedly from the USD $4 billion deficit (equivalent to 1.98 percent of the country's gross domestic product) recorded in the fourth quarter of 2013.

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