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Indonesia's manufacturing likely to improve in coming months

Indonesia's trade surplus surged to USD1.3bn in July, with weaker exports at -19.2% y/y more than offset by a -28.4% plunge in imports. The lack of government spending (until mid-April) has had significant spillover effects to the economy, resulting in reduced employment, private consumption and imports. 

President Jokowi's recent cabinet reshuffle would help in speeding up investment spending and this is expected to be a bigger growth driver in H2. The fall in imports was partly seasonal in the aftermath of Ramadan, but consumer sentiment remains on the weak side, as seen in the continued relatively low levels of motorcycle sales. 

The release today brought the YTD trade surplus to USD5.7bn, the highest since 2011. The improvement masks a slightly concerning underlying trend, which is a steadily weaker ability to consume imported durables, now that the IDR is 15.7% weaker vs the USD than a year ago. Another factor was the delayed launch of key infrastructure projects and the delays in awarding government tenders. 

According to Barclays,


  •  Despite the disappointing export print, manufacturing shipments are still expected to improve in the coming months, although at a slow pace. 
  • With inflation trending above BI's target range in Q2 and Q3 as well as growing concerns of stress on the currency, there is a strong case for the central bank remaining on hold this year. 
  • Simultaneously, BI is visibly more reluctant to weaken the IDR in the near term, to avoid stoking imported price pressures. 
  • While the commodity drag due to weaker demand from China has not subsided, the central bank is likely to draw greater comfort from news that the authorities are speeding up infrastructure spending, which should drive growth in H2. 
  • Also, the growth dividend from infrastructure spending should make a significant contribution from 2016 onwards, but would keep growth in 2015 marginally above 5%.

  • Market Data
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