Indonesia’s trade data paints gloomy picture of manufacturing industries
Indonesia’s trade surplus and relatively resilient export figures in March may not be sustained in the near future and reflects a raw material supply disruption that threatens the growth of local manufacturing businesses, economists say.
Even though Indonesia recorded a US$743 million trade surplus in March with a slight contraction in export and import growth, capital goods imports contracted 18 percent year-on-year (yoy) to $1.8 billion. The data indicates supply disruptions and weaknesses in the domestic manufacturing industry, said Indonesian Employers Association (Apindo) deputy chairwoman Shinta Kamdani.
“This is not good news because the existence and growth of the country’s industrialization and businesses are being threatened despite the recent trade surplus,” Shinta told The Jakarta Post.
The manufacturing industry accounts for nearly 20 percent of Indonesia’s gross domestic product (GDP). Factory activity suffered its deepest contraction in history at 45.64 percent, according to Bank Indonesia’s Prompt Manufacturing Index.
Indonesia recorded $14.09 billion in exports in March, a 0.2 percent contraction yoy, while total imports contracted 0.75 percent yoy to $13.35 billion, driven by a decrease in imports of capital goods. The World Trade Organization (WTO) projected that global trade would shrink by between 13 and 32 percent this year amid the COVID-19 pandemic.
“The government should ensure the economy remains active to defend the country’s exports and pave way for quick economic recovery once the virus subsides,” said Shinta, adding that the government should provide financial support for businesses to support the economy.
During the January-March period, Indonesia recorded a trade surplus of $2.62 billion, compared with a deficit of $62.8 million in the same period last year, as exports rose 2.9 percent to $41.8 billion while imports fell 3.69 percent to $39.2 billion. Imports of capital goods contracted 13 percent to $5.86 billion in the first quarter.
“We see that event though imported raw materials and capital goods are more likely to fall as economic activities halt amid the COVID-19 pandemic, weaker global growth than anticipated will cause demand and major commodity prices to decline,” Bank Mandiri chief economist Andry Asmoro said in a research note. “It will result in shrinking exports.”
On the other hand, Andry went on to say, food and health equipment imports will keep increasing.
“The situation will lower the trade surplus and cause a wider current account deficit position this year,” he added.
Contacted separately, Bank Central Asia (BCA) economist David Sumual told the Post that the decline was in line with market expectations, adding that a lack of supply from China following its COVID-19 lockdown would have a negative impact on the country’s future exports.
“We are lucky that the supply of raw materials and capital goods is enough until Idul Fitri in May, so it would fulfill domestic demand,” said David. “However, if the lockdown continues after May, it will have a huge impact on the global supply chain through a shortage of supply.”
Bahana Sekuritas economist Satria Sambijantoro said although trade disruptions from COVID-19 were not evident in Indonesia’s March data, the risk on trade outlook remains on the downside.
“We remain wary of possible supply chain disruptions in Indonesia’s trading partners, particularly Japan, South Korea and Thailand, the three manufacturing hubs from which Indonesian industries source their capital and intermediate goods imports,” he wrote.