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Indonesia's trade deficit may reach US$5b on bleak outlook
Publication Date : 31-07-2013
Indonesia will likely see its trade deficit breach a record high of US$5 billion this year, more than double the figure last year, as the bleak export outlook continues.
A slowdown in China, the country’s biggest trading partner, was expected to further hurt the trade balance, Trade Minister Gita Wirjawan said.
“The current situation in China, which is experiencing decelerated economic growth, will highly affect us as it is now our largest trading partner. Demand for our goods will also shrink in line with this development,” Gita told The Jakarta Post in an email interview.
Indonesia suffered its first ever annual deficit of $1.65 billion last year as shipments to most of the country’s key buyers plunged against the backdrop of the global economy.
In the period of January–May, the trade balance posted a deficit of $2.53 billion, with exports reaching $76.25 billion and imports $78.78 billion. The deficit gave a considerable share in the country’s first quarter current account deficit of $5.3 billion.
From January until May this year, non-oil and gas exports to China dropped by 3.67 per cent to $8.56 billion, or 13.6 per cent of total non-oil and gas exports, while imports declined slightly by 0.25 per cent to $11.87 billion, or 19.7 per cent of the exports.
This has widened the trade gap by more than one-third to $3.31 billion from last year.
China saw its economy expand by only 7.5 per cent in the second quarter, its slowest pace since the 2009 global downturn, with economists expecting the gloomy outlook to persist throughout the upcoming months.
The world’s second-top economy once expanded by 10.4 per cent in 2010 before the recession.
China’s weaker growth might not only lower demands but it might also result in “more lacklustre” commodity prices, which would have significant implications on Indonesia, Eugene Leow, a regional economist at the Singapore-based DBS bank, recently said.
At present, China — along with India — is among the biggest buyers of Indonesia’s primary commodities, such as palm oil and coal, due to its hunger for energy sources and robust domestic consumption.
Gita further said that despite the higher shipment of goods to non-traditional destinations, the exports would not be sufficient enough to counter dousing demand from China.
“Exports to non-traditional markets still cannot compensate for the potential slide in the volume of trade with China,” he said, pointing out the small base line for such exports.
From 2008 to 2012, exports to new markets grew by an average 11.9 per cent per year to stand at $24.61 billion last year.
However, during the January-April period, shipments also declined by 3.55 per cent to $7.99 billion, according to statistics at the Trade Ministry.
In a bid to reduce trade deficits, the government will start taking an exportation method of not only free on board but also cost, insurance and freight (CIF), into calculation in early August, according to Gita.
He said trade balance data would accordingly be more precise as it would include service costs for exports on a CIF basis, which had previously never been part of the calculation.
“The shift in the exportation method [...] is expected to change trade posture in the future and cut the trade gap,” he said, referring to the utilisation of export services — transportation, financing and insurance — domestically.