Indonesia Sept trade improves, Oct PMI at record
by Rieka Rahadiana and Neil Chatterjee

Reuters    Translate This Article
1 November 2012

JAKARTA (Reuters) - Indonesia's trade picture improved more than forecast in September and manufacturing grew strongly in October, signaling a recovery from weak exports that have weighed on Southeast Asia's largest economy in recent months.

Inflation also climbed in October but remained within Bank Indonesia's target range, leading economists to expect the central bank to keep interest rates at a record low into 2013 to help support the domestic demand that is the economy's mainstay.

On top of showing Indonesia is gaining some traction, the data reinforced a trend seen across Asia, where big economies are slowly picking up after a year battling global headwinds. Business surveys on Thursday showed an improving factory sector in China, Indonesia's top trade partner.

'Good data as a whole, especially the fact that Indonesian import growth has returned back to positive territory. The fact that the trade balance has recorded another surplus is also encouraging,' said Gundy Cahyadi, economist at OCBC.

Indonesia's exports still fell 9.35 percent in September from a year ago, the sixth month in a row in which they were lower than a year earlier. This was better than a forecast 14.7 percent drop and August's 24 percent slump, as exports of metal ores and palm oil jumped.

Exports look likely to pick up further, after Indonesia's HSBC Purchasing Managers' Index (PMI) rose in October to 51.9, the highest level since HSBC started the survey in 2011, though economists said a full recovery was likely to be slow.

'Export growth continues to indicate that the economy remains weighed by lower global demand, relatively low commodity prices and high base effects. We look for export growth to gain ... only towards the second half of 2013,' Cahyadi said.

Indonesia's imports in September rose 1.2 percent, better than a forecast for a 5.3 percent drop. August saw a surprise 8 percent fall, the first year-on-year fall for a month since November 2009, leading to concerns that domestic demand could be slowing.

Other indicators for domestic consumption, which makes up around 55 percent of GDP, have remained strong. Retail sales rose 11 percent in August from a year earlier, and consumer confidence grew in September.

Indonesia reports third quarter GDP data on Nov. 5. In the second quarter, it grew 6.4 percent from a year earlier.

Radhika Rao of Forecast Web in Singapore said 'Certainly the better-than-consensus exports and imports does bode well for Q3 growth numbers out early next week.'

TRADE BALANCE IMPROVES

September saw a trade surplus of $550 million, compared with August's $250 million. Between April and July, Indonesia reported four consecutive trade deficits, hitting the rupiah, Asia's worst-performing currency this year.

The rupiah was little changed after the trade data at 9,628 per U.S. dollar, having dropped 0.2 percent earlier on Thursday, to take losses for the year to 5.8 percent.

In a statement last month, Bank Indonesia said it expected a balance-of-payment surplus in the third quarter supported by improving current accounts and a bigger surplus in capital and financial transactions.

It estimates inflation could be lower than 4.6 percent for the full year, within its target range of 3.5-5.5 percent. The country's annual inflation in October was 4.61 percent, compared with a poll forecast of 4.57 percent.

The weaker currency means Indonesia is unlikely to take advantage of the mild inflation to cut interest rates further. Most economists expect Bank Indonesia to leave the benchmark rate at a record low at its meeting on Nov. 8.

Rao of Forecast Web said that with rate-cuts 'completely out the picture', the central bank's only option is to later lift rates with the timing in sync with reductions in global and improving trade numbers.

Robert Prior-Wandesforde, economist at Credit Suisse, said he believes the central bank 'will eventually be forced to tighten policy reasonably aggressively to protect the rupiah from the consequences of a deteriorating external deficit.'

(Additional reporting by Adriana Nina Kusuma and Andjarsari Paramaditha; Editing by Richard Borsuk)

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