World Economy

Indonesia’s Trade Surplus Sign of Weak Recovery

Indonesia’s Trade Surplus Sign of Weak RecoveryIndonesia’s Trade Surplus Sign of Weak Recovery

The widening trade surplus in June on the back of a seasonal demand indicates a weak recovery of Indonesia’s economy, according to economists with the private lender Bank Danamon Indonesia.

Indonesia’s trade surplus widened to around $900 million in June from May’s revised $380 million surplus, the country’s Central Statistics Agency revealed in a press conference on Friday, Nasdaq reported.

Apparel and mechanical appliances accounted for the bulk of exports due to summer demand among Indonesia’s trading partners, a trend that would end in the following months, Danamon’s Anton Hendranata and Wisnu Wardana wrote in a research note.

A notable 46% month-on-month increase was recorded in exports of finished garments, the official Central Statistics Agency chairman Suryamin said.

Imports rose 7.9% to $12.02 billion from a month earlier, but contracted 7.4% from a year earlier.

During the first half of the year, Indonesia’s exports dropped 11.4% to $69.51 billion from the same period last year, as non-oil and non-gas exports slid 7.9% to $63.01 billion. Imports for the same period dropped 10.9% to $65.92 billion.

The Central bank, Bank Indonesia, in a separate statement said the trade balance in the second quarter will be “positive” to support the current account balance, amid businesses and government needs to service foreign debts.

The central bank expects Indonesia’s economic growth to reach between 4.9 and 5% (y/y) in the second quarter of 2016, only rising slightly from GDP growth realization of 4.92% in the first quarter. Growth is forecast to remain subdued as Indonesia’s household consumption has not improved markedly yet (reflected by low demand for credit).

Meanwhile, the global economic context remains plagued by uncertainties, particularly ongoing concern about the economies of the USA, China and Europe.

Mirza Adityaswara, deputy governor at Bank Indonesia, says the Indonesian economy is highly dependent on the global economy, especially now that the domestic engine of economic growth—household consumption (accounting for about 58% of the nation’s total economic growth) –  remains  growing at a subdued pace.

But with the global economy having been under pressure, there is limited room for Indonesia to see markedly accelerated economic growth in the second quarter.

Indonesia is a key commodity exporter and with commodity prices at a persistently low level due to weak global demand, Indonesia’s export performance has little room to improve.

Moreover, the recently strongly appreciating rupiah exchange rate does not make Indonesian exports more attractive for foreign importers. Therefore, Bank Indonesia is expected to prevent the rupiah from strengthening too strong in a bid to support the nation’s manufacturing exports.