Indonesian exports likely to witness double-digit fall in August; BI easing pressures may loom

Indonesian exports are likely to have degraded to a double-digit figure during the month of August; also easing pressure on Bank Indonesia is expected to loom further, if trade balance deteriorates in the near future.

Expectations in the market are looking at -11.4 percent y/y export growth in August. Going by the data so far in the year, total exports of goods are likely to fall to the tune of 9.8 percent this year, making it the fifth consecutive year of negative export growth, DBS reported.

The fact that the trade balance is still set to be in surplus, a projected total of USD 6 billion this year, is a clear indication that domestic demand remains sluggish. Imports are likely to chalk -12.2 percent y/y growth in August.

As far as GDP growth is concerned, net exports have hardly contributed anything in the past three quarters. Contribution from net exports to GDP growth averaged 0.1 percentage point since 3Q15, during which GDP growth has averaged 5.0 percent.

The government remains committed to steer the economy away from commodities and into manufacturing. Yet, manufacturing GDP growth came in at 4.7 percent y/y in 1H16, practically in line with the average growth seen since 2012.

"We reckon that manufacturing GDP growth needs to exceed 5.5 percent before export growth can play a more significant role in driving GDP growth, assuming constant commodity prices ahead," DBS commented in its latest research report.