This week, a crucial piece of economic data was released - the trade balance figures for Italy, the Euro Area, India, and Indonesia. Interestingly, while Italy showed a decline, the other regions, including Indonesia, reported an increase.
But does a rising trade balance surplus always reflects a good economy condition?
Indonesia's trade balance recorded a USD 3.30 bn surplus in Dec-23 from USD 2.41 bn in Nov-23, way above market consensus and our projection of USD 1.92 bn and USD 2.41 bn, respectively.
Source: Sucor Research
This increase, however, comes with a twist - a notable decrease in imports that contributed to this surplus.
On the export front, overall, there was a 5.76% yoy contraction in exports. Breaking this down, oil and gas exports actually saw a slight increase of 1.45% yoy, while non-oil and gas exports experienced a more significant drop of 6.23% yoy.
Despite these varied results, both sectors experienced a monthly rise, with oil & gas and non-oil and gas exports growing by 15.28% and 1.06%, respectively.
In the non-oil & gas category, the manufacturing sector remained the largest contributor, despite a 4.27% yoy decline over the year. This was followed by downturns in the mining and agriculture sectors, which shrank by 12.20% and 4.27%, respectively.
Source: BPS
Turning to imports, there was an overall decrease of 3.81% yoy. Interestingly, oil and gas imports actually grew by 5.35%, but this was offset by a larger 5.57% decline in non-oil and gas imports.
A major part of Indonesia's imports consisted of raw materials, which saw a 4.43% drop. In contrast, imports of consumption goods exhibited growth both monthly and yearly.
However, it's the capital goods segment that stands out with its substantial decrease, dropping by 10.51% monthly and 9.91% yearly.
Source: BPS
This decline in imports, contributing to the positive trade balance, suggests restrained corporate spending at the year's end.
Additionally, in my view, this reduction in imports is also a reflection of a slowdown in economic activities and a deceleration in the manufacturing sectors of Indonesia's key trading partners, significantly impacted by the Fed's interest rate hikes in 2022-2023.
The higher interest rates led to more expensive borrowing costs worldwide. This increase in borrowing costs put a strain on businesses, especially those in the manufacturing sector, as they often rely on credit for capital investments and operations. I think, in anticipation of the upcoming presidential election, many businesses are adopting a 'wait and see' approach. They are hesitant to make significant investments or undertake new ventures until the political landscape becomes clearer.
Though, this trade balance surplus can be seen as the reflection of the resilience of Indonesia’s economy amid a global economic slowdown, and we expect this surplus trend might continue this year considering current prices of Indonesia's top export commodities are still enough to support exports.
Additionally, oil prices have maintained stability despite ongoing geopolitical tensions, suggesting a potentially steady economic trajectory for Indonesia in the face of global market fluctuations.
Looking forward, even amidst the forthcoming elections, we anticipate the Indonesian economy will maintain its stability in the coming months.
Despite the recent dip in imports, data from RDGBI meeting on January 17, 2024, shows a promising 10.38% yoy increase in bank loan growth. This growth is especially significant for the multifinance industry. It shows that people and businesses are feeling good about borrowing money, mostly for buying things or investing, which is what multifinance companies help with. We're expecting this upward trend to gain even more momentum going forward.
Further bolstering this optimistic outlook is the rise in CPI, which saw a 2.61% increase yoy in Dec-23. This uptick in the CPI is a clear indicator of expected improvements in consumer spending.
Source: BPS
This anticipated boost in consumer spending is particularly beneficial for the multifinance sector, as it typically leads to an increase in loan demand, thus enhancing the growth prospects of multifinance companies. Thats why we continue to believe BFIN as our top picks. Multifinance companies are often chosen over banks for loans because they offer services that are more tailored to what everyday consumers need. With the observed growth in loans to banks, expectations are leaning towards a single-digit growth.
In my view, companies are likely to remain cautious with their capital expenditure, particularly in anticipation of the upcoming elections, which are expected to comprise multiple rounds. This cautious approach towards spending, driven by the electoral uncertainty, means that company capital expenditure, a key driver for growth in bank loans, might not see a significant increase in the short term.
This scenario is where multifinance companies, particularly those like NDF, play a crucial role. They are more consumer-oriented and are able to distribute loans effectively to individual consumers
In my perspective, the recent decrease in fuel prices and the potential reduction in rice prices, are particularly favorable for the consumer industry. Lower costs for essential commodities like fuel and rice, consumers might increase spending on other consumer goods and services. Such an uptick in spending not only boosts the consumer confidence index, reflecting a more optimistic outlook from consumers, but also contributes to higher retail sales. This cycle of increased spending and confidence can subsequently drive up prices in various areas, potentially leading to an overall increase in the CPI.
All these factors combined paint a hopeful picture of economic stability and sustained growth for Indonesia in the coming months.