However, besides palm oil, we detected a more general decline in Indonesia’s export performance, so – in total – the country’s exports fell by almost $6.0 billion in May 2022. And, since imports have seen a much more moderate decline, the trade balance has narrowed quite significantly. (although it remains in surplus at $2.89 billion), down from the all-time high it recorded in April 2022 ($7.56 billion).
The international environment
This means that Indonesia somewhat missed improving global conditions in May 2022. For example, China showed its first signs of reopening with the easing of restrictions in Shanghai, allowing economic activity to improve. . As a result, imports into China rose 4.1% y/y, modest but (at least) the first expansion in three months, while exports from China rebounded 16.9% (y/y). y) in May 2022.
Meanwhile, imports into Japan rose 48.9% (y/y) in May 2022 to a new record high, well above market estimates, and also much faster than the 28.3 gain. % (y/y) recorded the previous month. . For Japan it was the 14the a consecutive month of double-digit import growth (and the fastest growth since May 1980) amid strong domestic demand, soaring commodity prices and a weak yen that drove up costs for consumers and businesses.
Japan’s exports increased by 15.8% (y/y) in May 2022, compared to an increase of 12.5% (y/y) in April 2022. This was the 15e consecutive month of growth in shipments from Japan (Indonesia’s third-largest trading partner) and the fastest pace in three months, amid easing supply chain disruptions. However, the disturbances persist. For example, Indonesians who want to buy a motorcycle (from a Japanese brand like Honda or Yamaha) still have to wait longer than usual because the distribution of certain components from Japan continues to be disrupted.
But despite these generally improving trade conditions, Indonesia’s exports to China and Japan fell sharply in May 2022, thus not benefiting from the improved conditions. The value of Indonesian exports to China decreased by $899 million and to Japan by $614 million in May 2022 (compared to the previous month). We speculate that Indonesia’s palm oil and cooking oil export ban is a major factor in these declines. Meanwhile, the United States (US) has yet to release its latest trade data, but based on data released by the Indonesian Statistical Agency (Statistics Badan PusatBPS), we also see a deterioration in shipments from Indonesia to the United States (down $404 million in May 2022 compared to April 2022).
When we look at global commodity price movements in May 2022 (see Table 1 below), we see that the price of palm oil has increased slightly (thanks to Indonesia’s export ban , as Indonesia is the largest producer and exporter of palm oil in the world). However, Indonesia clearly failed to take advantage of this price increase due to the ban.
Additionally, on a monthly (m/m) basis, the price of coal declined as soaring inventories and falling demand put pressure on the market. Considering that Indonesia is a force in terms of coal exports, the drop in coal prices certainly does not bode well for the country’s export performance.
If we look at the import side, rising crude oil prices are putting some pressure on Indonesia’s trade balance (as Indonesia remains a net importer of oil), while rising wheat and soy can cause inflationary pressures. Beef prices may also become attractive in the coming weeks as Indonesia may need to import more beef from overseas (ahead of Idul Adha – Day of Sacrifice – celebrations on July 9-10, 2022 , when beef demand peaks) after a foot-and-mouth disease in cattle broke out last month. Indonesia launched a nationwide livestock vaccination program in mid-June 2022 (but how successful it will be remains unknown).
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