General

A shopping mall located in Jakarta, Indonesia before Eid al Fitr. Despite the strong festive atmosphere, people's consumption enthusiasm is not high.

According to Huacheng Import and Export Data Observation, Indonesia's foreign trade continued to maintain a surplus in April this year, reaching 3.94 billion US dollars, which is higher than the 2.83 billion US dollars in March. This is the 36th consecutive month that Indonesia has maintained a trade surplus. However, this surplus was achieved against the backdrop of continued contraction in both imports and exports, and may further narrow. The impact of declining demand in the US and European markets is particularly worrying.

According to import and export data recently released by the Indonesian National Bureau of Statistics, Indonesia's export volume in April 2023 reached 19.29 billion US dollars, a decrease of 17.62% month on month and 29.40% year-on-year. This is also the lowest in the past 15 months. The last lowest export volume occurred in January 2022, at $19.17 billion.

Whether from an annual or monthly growth perspective, April's exports were "disappointing". In terms of annual growth, the export growth in April was the lowest level since October 2020; From a monthly growth perspective, it continues the contraction trend of the past 8 months. According to Huacheng Import and Export Data Observation, only March 2023 was the exception, with exports growing by 9.82%. The consecutive 8-month contraction in exports has never occurred since 2012.

According to data from the Indonesian National Bureau of Statistics, exports from all sectors have declined. In April, Indonesia's oil and gas exports decreased by 12.18% year-on-year, while non oil and gas exports decreased by 30.35% year-on-year. Among them, the agriculture, forestry, and fishery sectors experienced the largest decline, with a month on month decrease of 22.56% and a year-on-year decrease of 26.02%; Secondly, manufacturing exports decreased by 21.50% month on month and 31.95% year on year, while mining and other sectors decreased by 7.84% month on month and 25.85% year on year.

Imam Machidi, Deputy Director of the Indonesian Bureau of Statistics, stated that the decline in exports in April was a "seasonal pattern" as it coincided with this year's Eid al Fitr holiday in Indonesia, with a decrease in working days leading to a decrease in national export activity. Meanwhile, the decline in commodity prices is also an important reason for the sustained downward trend in exports.

According to Huacheng Import and Export Data Observation, as of April, the price of palm oil was $1005.2 per ton, a month on month increase of 3.41%, but a year-on-year decrease of 40.26%; Coal costs $194.3 per ton, an increase of 3.77% month on month and a decrease of 37.50% year on year; The nickel price is 23.9 US dollars per ton, an increase of 2.60% month on month and a year-on-year decrease of 27.88%; Crude oil was $82.5 per barrel, a month on month increase of 7.83% and a year-on-year decrease of 20.26%. In addition, the prices of iron ore and natural gas have both decreased month on month and year on year. Iron ore costs $117.4 per ton, a decrease of 8.55% month on month and 22.39% year-on-year; Natural gas is priced at 2.2 US dollars per million British thermal units, a decrease of 6.24% month on month and 66.91% year-on-year.

In addition, the weakening of the Indonesian rupiah is also one of the reasons. Imam stated that compared to March 2023, the Indonesian rupiah exchange rate in April was relatively weak against the US dollar. On April 28, 2023, the exchange rate closed at 14661 Indonesian rupiah to the US dollar, bringing the average exchange rate for April to 14844 Indonesian rupiah.

The decrease in imports was also as expected. Indonesia's import volume in April 2023 reached 15.35 billion US dollars, a decrease of 25.45% month on month and 22.32% year-on-year. This is the third consecutive month of import contraction and the largest contraction since February 2009.

According to data from the Indonesian National Bureau of Statistics, the import volume of oil and natural gas in April 2023 was 2.96 billion US dollars, a decrease of 1.98% month on month; The import value of non oil and natural gas was 12.39 billion US dollars, a decrease of 29.48% month on month. Imam stated that compared to March, the largest decline in non oil and natural gas commodity imports in April was in motor/equipment, reaching 32.01%; The largest increase was in the food industry, reaching 22.48%.

The slowdown in Indonesia's imports and exports in April has attracted attention from all parties. Taohid Ahmad, director of the Indonesian Institute of Economic and Financial Development, believes that the decline in imports indicates a slowdown in the Indonesian economy. On the one hand, Indonesia's export destinations have decreased, especially in the textile, clothing, footwear, and furniture industries where demand has decreased, leading to a reduction in their imports of these industrial raw materials. On the other hand, people's purchasing power has weakened, especially the purchasing power of consumer goods in the middle and lower classes is declining.

However, according to Huacheng Import and Export Data Observation, Fajal Hirawan, Director of the Economic Department of the Indonesian Center for Strategic and International Studies, does not agree with the statement of "weak purchasing power" because consumer goods imports only account for about 15%, while raw materials or auxiliary materials imports exceed 70%.

Faisal Raziman, an economist at Mandeli Bank in Indonesia, stated that Indonesia's trade surplus is expected to continue for a longer period of time, but will continue to narrow in the second half of 2023. On the one hand, due to the decline in commodity prices, Indonesia's exports are likely to continue to slow down in the future. On the other hand, in the context of high inflation and rising benchmark interest rates, global demand continues to be sluggish. However, due to China's optimization and adjustment of epidemic prevention policies, the duration of Indonesia's trade surplus may be longer than expected.

The Indonesian business community believes that the ongoing geopolitical tensions and intensified competition among countries in the region will continue to pose significant challenges to Indonesia's trade until the end of 2023. Benny Sutrisno, President of the Indonesian Export Company Association, reminded all parties in Indonesia, especially the government and business community, to be cautious and continue to improve productivity, paying special attention to the negative impact of reduced raw material imports on trade performance.

Due to the decline in demand in the US and European markets, the Indonesian textile industry is still facing layoff pressure. Indonesian Minister of Human Resources, Ida Fajia, recently acknowledged that textile and shoe factories exporting to the European and American markets are facing enormous pressure, not only due to "reduced demand, but also no demand at all". Ida stated that in order to avoid a wave of layoffs, the human resources department has made various concessions, such as quickly intervening in mediation after receiving complaints, to allow workers to continue working. "Layoffs should be the last resort," but she cannot determine how long this situation can last.