India, Indonesia faces steep correction in trade imbalances over first two months of 2019; domestic economic activity deteriorates

India and Indonesia have faced a steep correction in trade imbalances over the first two months of the year. The trade deficit in the Philippines, data for which is available until January, has also stabilised, albeit at an elevated level.

The improvement in the trade imbalances has mainly been driven by broad-based weakness in imports and not a pick-up in exports. This suggests deterioration in domestic economic activity in these economies, ANZ Research reported.

Indonesia’s exports fell by 11.3 percent y/y – this was not only an extension of the contracting trend that had set in from November 2018 but also an intensification of the weakness. Exports also continued their decline in the Philippines although January’s fall was less severe than in December. India’s exports managed to stay above water in both January and February but the underlying trend has also faltered.

Further progress in reducing the trade deficits would therefore depend on the response of policymakers to support domestic demand. Policymakers in India are already quite advanced in their efforts through interest rate cuts and increased government spending.

Measures to shore up domestic demand will slow the pace of improvement in the trade imbalances in light of the still challenging export backdrop.

"We expect the Philippines to ease monetary policy this year in response to slowing domestic activity. The response in Indonesia has been milder, but probably due to the structural nature of the current account deficit," ANZ Research further commented.