Indonesia’s first trade deficit in a year may be a portent for 2016, says ANZ

JAKARTA - After a year of trade surplus, Indonesia’s trade balance has returned to deficit.  Exports having fallen by 17.58% over the year to $11.16 billion and imports are down by 18.03% to $11.51 billion, the trade balance slipping into a $0.35bn deficit.

In a research note, ANZ Bank says that, unfortunately, it sees the November deficit as a likely portent of a return to more sustained trade deficits in Indonesia over the course of 2016. “This is consistent with recent official guidance that the current account deficit is likely to be widening from around minus 2.0% of GDP in 2015 to around minus 2.6 to minus 2.7% of GDP in 2016,” ANZ says.
“A widening current account deficit coupled with our forecast for the budget deficit to also widen will see Indonesia in the unfortunate position of deteriorating twin deficits, most probably in a Fed tightening year. This will be an unwelcome development.
“Our sombre outlook on the Indonesian trade outlook is borne from our view that Indonesia is the ASEAN economy bearing the brunt of the China slowdown as it is largely an undiversified commodity exporter. 
“With a large proportion of Indonesia’s commodity exports going to China and with little in the way of substitutability, Indonesia is experiencing the sharpest year-on-year contraction in exports and imports of any economy in ASEAN. 
“We expect this dynamic to continue as long as the Chinese economy slows. Although our China economists note some recent stability, their medium term outlook is that China will be softer in 2016 than it will be in 2017.
“Moreover, capital goods import intensive from the 2015 fiscal stimulus measure is likely to be more fully realised in 2016.  Though consumer goods imports are likely to be tracking softer private consumption to a narrower deficit, we expect this to be more than offset by the widening in higher-value capital-goods imports.
“Deteriorating twin-deficits may come to be a concern in 2016.  However, we would note that some positive elements will be behind the deterioration in the trade balance over 2016.
“To the extent that fiscal stimulus finally does gain traction, which will be a negative externality for imports, this should help stabilise Indonesian headline growth over the course of 2016.  Still, this does not detract from the fact that Indonesia is the only economy in the ASEAN that runs a primary trade deficit.
“Overall, Indonesia remains the ASEAN economy that our moniker of “trade recession” will continue to be most applicable to.  Given this, our forecast of a 1.8% current account deficit for 2016 looks disproportionately optimistic.
“We are reviewing this forecast at the moment, but believe that the 2016 current account deficit is likely to be around the mid-point between 2015’s likely 2.0% deficit and 2014’s 2.9% deficit.” www.live.anz.com (ATI).