Macroscope

Macroscope
Economic | 18 December
Research 2018 2018
| 18 December

Nov18 Trade Result Could Trigger (Another) Front-loaded Rate Hike

Nov18 trade balance printed a deficit of –USD 2.1bn, broadly in line with our
Economic Forecasts estimate at –USD 1.6bn (vs. consensus -USD 735mn) (see exhibit 1). The figure is the
largest trade deficit since Jul13 or five years ago. As expected, exports deteriorated
2016 2017 2018F
compared to imports, and the former worsened more than our forecast. Exports
Real GDP (%) 5.0 5.1 5.16 contracted for the first time since Jun18, at -3.2% YoY (vs. 4.3% in Oct18), while imports
GDP/capita (US$) 3,589 3,827 3,888 decelerated to 11.7% (vs. 24.1% in Oct18).
Inflation (%) 3.00 3.61 3.60
7-DRRR 4.75 4.25 6.25 Imports eased both in terms of aggregate price (4.4% from 14.5%) and volume (6.9%
CAD/GDP (%) -1.8 -1.7 -2.45 from 8.3%). Oil & gas imports eased to 28.6% YoY in Nov18 from 32.2% YoY in Oct18, in
Exc. Rate (Rp/US) 13,492 13,588 14,635 line with lower oil price. Even more, capital goods contracted for the first time in 17
months at -2.2% YoY from 25.7% YoY in Oct18. The contributions of import machineries
were much lower in Nov18, around 0.7ppt compared to the previous month at 6.8ppt (see
exhibit 6). It seems that this was due to the lagging effect of rupiah depreciation, the
finished capex recycling, and the lower public capital spending (the government’s capital
expenditure contracted by -3.6% in 11M18). Only a few import goods recorded an
increase, such as beverages and vegetables, which generated positive contributions and
were accelerating in terms of year-on-year, likely driven by the year-end festivity.

Unfortunately, export contracted by-3.2YoY in Nov18. Exports deteriorated in context

of price (-8.7% from -6.6%) and volume (5.9% from 11.6%) (see exhibit 5). In details, the
year-on-year exports contraction was contributed mostly from the decline of CPO (-18.9%
YoY in Nov18 vs. -2.9% in Oct18) and wood (-48.9% vs. -18.8). Interestingly, despite coal
exports having declined in monthly terms, the annual figure still grew by 5.3% (see exhibit
6). This suggests the annual coal export could drop in Dec18, as the impact of China’s coal
import ban is fully effective. All in all, the fact that trade deficit continues to widen when oil
price has dropped significantly by 18.2% in Nov18 and non-oil & gas imports has slowed
further (see exhibit 3) suggest that the risk of a slower exports ahead needs to be
recognized amid the possible slower global growth and trade war escalation.

Our view: wider CAD risk could trigger BI to front-load next year’s rate increase to
this month. Based on the Nov18 result, we believe the current account deficit could reach
Leo Putera Rinaldy between -3.3% to -3.6% of GDP in 4Q18, suggesting that FY18 current account deficit
Chief Economist could reach around -3.0% to -3.1% of GDP. We do believe the trade balance will improve in
+6221 5296 9406 Dec18, yet it will not be enough to offset the already-high Oct-Nov18 trade deficit of
leo.rinaldy@mandirisek.co.id –USD3.8bn (vs. 3Q18 trade deficit at –USD 3.0bn). This is especially considering the month-
to-date trend of export commodities has remained declining, whereas the full impact of
China’s import ban on coal will be seen in Dec18. Thus, taking into account that the central
Aziza Nabila Amani bank is data driven on its policy and BI’s effort to bring down the current account deficit to
Research Assistant -2.5% of GDP next year, we see that Bank Indonesia could front-load the 2019 policy
+6221 5296 9651 increase to Dec18 by 25 bps to 6.25% in this week’s governor board meeting. One factor
aziza.amani@mandirisek.co.id
that could hold BI from hiking the policy rate this week, in our opinion, is if the new Fed
dot plot introduced in the FOMC meeting this Thursday comes out more “dovish” than
anticipated (read: guiding a Fed Fund rate increase of lower than two times next year).

Page 1 Please see important disclosures at the back of this report

 Macroscope | 18 December 2018

EXHIBIT 1. TRADE SUMMARY

Oct-18 Nov-18
MS Forecast Market Consensus Actual
Exports (% YoY) 1.7 1.5 3.0 -3.3
Imports (% YoY) 14.2 13.5 9.7 11.7
Trade balance (US$ mn) 227 -1600 -735 -2050

Sources: Bloomberg, Mandiri Sekuritas estimates

EXHIBIT 2. TRADE DATA DEVELOPMENT EXHIBIT 3. ALL IMPORT GOODS CLASSIFICATION MARKED
DOWNTRENDS
Trade data development  Import trends (%YoY, 3MMA)
60% 2.5 40%
50% 2.0 35%
40% 1.5
30%
30% 1.0
20% 0.5 25%
10% 0.0 20%
0% ‐0.5 15% Consumer goods
‐10% ‐1.0
Trade balance (US$ bn) ‐ RHS 10% Raw materials
‐20% ‐1.5
‐30% Exports (%YoY) ‐2.0 5% Capital goods
‐40% Imports (%YoY) ‐2.05 ‐2.5 0%

Sep‐17

Sep‐18
Feb‐15

Feb‐16

Feb‐17

Feb‐18

Mar‐17

Jul‐17

Mar‐18

Jul‐18
Aug‐15

Aug‐16

Aug‐17

Aug‐18

Jan‐17

Nov‐17

Jan‐18

Nov‐18
May‐17

May‐18
Nov‐15

Nov‐16

Nov‐17

Nov‐18
May‐15

May‐16

May‐17

May‐18

‐5%

Source: CEIC Source: CEIC

EXHIBIT 4. INDONESIA’S EXPORTS TO CHINA CONTRACTED IN EXHIBIT 5. EXPORT TRENDS DECLINED BOTH IN PRICE AND
THE LAST TWO MONTHS VOLUME
Indonesia's exports to China (%YoY) Export trends
80 73.1 30%
Aggregate price (%YoY)
70 63.2 25%
60 54.0 53.8 20% Volume
50 42.3 44.9
38.5 38.6 15%
34.8
40 31.034.2 30.2 31.2 32.4
10%
26.4 23.9 25.2
30 20.9
14.7 5%
20 12.0 12.6
0%
10
0 ‐5%
‐10 ‐4.1‐7.6 ‐10%
‐20 ‐15%
Sep‐17

Sep‐18
Mar‐17

Jul‐17

Mar‐18

Jul‐18
Jan‐17

Nov‐17

Jan‐18

Nov‐18
May‐17

Sep‐17

May‐18

Sep‐18
Jul‐17

Jul‐18
Mar‐17

Mar‐18

Jan‐17

Nov‐17

Jan‐18

Nov‐18
May‐17

May‐18

Source: CEIC Source: CEIC

Page 2 Please see important disclosures at the back of this report

Macroscope | 18 December 2018

EXHIBIT 6. OCT18 TRADE TABLE

US$ mn Nov-18 MoM Contribution YoY Contribution
Total export 14,832 -6.7% -6.7% -3.2% -3.2%
Oil & gas export 1,371 -10.8% -1.0% 5.8% 0.5%
Crude oil 381 -9.1% -0.2% -22.2% -0.7%
Oil products 118 -28.7% -0.3% -0.6% 0.0%
Gas 873 -8.4% -0.5% 26.9% 1.2%
Non-oil & gas export by commodity 13,460 -6.3% -5.6% -4.1% -3.8%
Mineral fuels excluding oil & gas products 2,026 -5.9% -0.8% 5.3% 0.7%
Animal or vegetable fats and oils and their cle 1,658 -9.8% -1.1% -18.9% -2.5%
Electrical machinery and equipment and parts 728 -7.6% -0.4% -2.1% -0.1%
Iron and steel 612 19.0% 0.6% 61.4% 1.5%
Natural and cultured pearls; precious, semi-pre 310 -52.5% -2.2% -41.4% -1.4%
Ores, slag and ash 496 80.2% 1.4% 48.2% 1.1%
Footwear; gaiters and the like 482 2.4% 0.1% -0.1% 0.0%
Organic chemicals 259 2.3% 0.0% -5.3% -0.1%
Pulp of wood or other fibrous cellulosic mater 143 -33.4% -0.5% -48.9% -0.9%
Nickel and articles thereof 72 15.1% 0.1% 54.8% 0.2%
Others 6,676 -6.4% -2.9% -4.7% -2.1%

Non-oil & gas export by country 13,460 -6.3% -5.6% -4.1% -3.8%
China 2,014 -7.1% -1.0% -9.3% -1.3%
United States 1,457 -5.0% -0.5% -3.3% -0.3%
Japan 1,358 6.1% 0.5% 2.3% 0.2%
India 1,135 -14.7% -1.2% -11.6% -1.0%
Malaysia 686 -6.4% -0.3% 0.9% 0.0%
Singapore 670 -16.7% -0.8% -19.2% -1.0%
South Korea 665 5.3% 0.2% 34.4% 1.1%
Thailand 479 -2.2% -0.1% -2.4% -0.1%
Taiwan 313 -6.9% -0.1% 2.7% 0.1%
Netherlands 290 -10.3% -0.2% -14.8% -0.3%
Germany 240 1.6% 0.0% 1.5% 0.0%
Australia 168 -16.0% -0.2% -0.1% 0.0%
Italy 95 -38.4% -0.4% -39.2% -0.4%
Others 3,890 -5.9% -9.3% -2.8% -0.7%

Total import 16,879 -4.5% -4.5% 11.7% 11.7%

Oil & gas import 2,835 -2.8% -0.5% 28.6% 4.2%
Crude oil 858 -2.4% -0.1% 62.6% 2.2%
Oil products 1,699 -1.6% -0.2% 21.9% 2.0%
Gas 279 -10.5% -0.2% -1.7% 0.0%
Non-oil & gas import by commodity 14,043 -4.8% -4.0% 8.8% 7.5%
Machinery and mechanical appliances; parts t 2,452 -3.7% -0.5% 4.7% 0.73%
Electrical machinery and equipment and parts 1,803 -10.0% -1.1% 0.1% 0.01%
Iron and steel 1,066 6.5% 0.4% 22.5% 1.30%
Cereals 270 -27.9% -0.6% 5.4% 0.09%
Food industries, residues and wastes thereof 232 -35.9% -0.7% -1.4% -0.02%
Chemical products n.e.c 287 24.7% 0.3% 56.6% 0.69%
Natural and cultured pearls; precious, semi-pre 140 52.9% 0.3% 11.1% 0.09%
Mineral fuels excluding oil & gas products 112 -55.8% -0.8% N/A N/A
Vegetables and certain roots and tubers; edib 98 140.4% 0.3% 72.3% 0.27%
Beverages, spirits and vinegar 91 470.6% 0.4% 506.5% 0.50%
Others 7,492 -4.3% -1.9% 6.7% 3.1%

Consumption Goods 1,432 -4.7% -0.4% 6.8% 0.6%

Raw Materials 12,855 -4.1% -3.1% 15.6% 11.5%
Capital Goods 2,592 -5.9% -0.9% -2.1% -0.4%

Source: CEIC, Statistics Indonesia

Page 3 Please see important disclosures at the back of this report

Macroscope | 18 December 2018

MACROECONOMIC INDICATORS AND FORECAST

2014 2015 2016 2017 2018F 2019F

National Account
Real GDP (% yoy) 5.0 4.8 5.0 5.1 5.2 5.1
Real Consumption: Private (% yoy) 5.1 5.0 5.0 4.9 5.0 5.0
Real Consumption: Government (% yoy) 2.0 5.4 -0.1 2.1 5.0 4.5
Real Gross Fixed Capital Formation (% yoy) 4.1 5.1 4.5 6.2 6.5 6.2
Real Exports (% yoy) 1.0 -2.0 -1.7 9.1 7.5 7.0
Real Imports (% yoy) 2.2 -5.8 -2.3 8.1 9.0 8.0
GDP (Rp tn) - nominal 10,543 11,541 12,407.00 13,588.80 14,778.80 16,199.10
GDP (US$ bn) - nominal 888 861.9 932 1,016 1,036 1,108
GDP per capita (US$) - nominal 3,520 3,377 3,589 3,852 3,888 4,110

External Sector
Exports (% yoy) - Merchandise -3.7 -15.4 -3.2 16.9 10.5 9.9
Imports (% yoy) - Merchandise -4.5 -19.7 -4.6 16.1 14.7 11.8
Trade Balance (US$ bn) 6.9 13.3 15.4 18.9 12.2 10.3
Current Account (% of GDP) -3 -2 -1.8 -1.7 -2.4 -2.4
Current Account (US$ bn) -26.2 -17.6 -16.3 -17.3 -25.3 -26.5
External Debt (% of GDP) 29.9 35 35 31 34 33
International Reserves (US$ bn) 111.9 106 116 130 113 115
Rp/US$ (period average) 11,878 13,458 13,308 13,380 14,325 14,450
Rp/US$ (year end) 12,440 13,795 13,436 13,588 14,635 14,600

Other
BI rate (% year end) 7.75 7.5
BI 7 days reverse repo rate (% year end) 4.75 4.25 6.25 6.5
Headline Inflation (% yoy, period average) 6.4 6.4 3.5 3.8 3.4 4
Headline Inflation (% yoy, year end) 8.36 3.35 3 3.61 3.6 4.5
Fiscal Balance (% of GDP) -2.2 -2.3 -2.5 -2.5 -2.2 -2.4
S&P's Rating - FCY BB+ BB+ BB+ BBB- BBB- BBB-
S&P's Rating - LCY BBB- BBB- BBB- BBB- BBB- BBB-

Sources: CEIC, Mandiri Sekuritas estimate

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