Indonesia posted trade surplus of USD950mn in May

Indonesia's trade surplus reached USD950mn in May, much larger than expected. The larger trade surplus is result of sharply weaker imports, even as the export contraction remained wide. 

The improvement in imports was expected did not materialise, while seasonality (the trade balance deteriorating in April-May over the past five years) was also distorted by persistently lower oil prices - and now weaker private consumption. The release today brought the YTD trade balance to USD3.8bn, the highest since 2011. 

However, the improvement masks a slightly concerning underlying trend, which is a significantly weaker ability to consume imported durables, now that the IDR is 12.5% weaker than a year ago, notes Barclays. Another factor was the delayed launch of key infrastructure projects and the delays in awarding government tenders (due to the January-April merger of the ministries of public works and housing). 

The lack of government spending (until mid-April) has had significant spillover effects to the economy, resulting in reduced employment, private consumption and imports (of capital and intermediate goods). Taken together, this could almost explain the 35% y/y fall in motorcycle sales in May, from 739,511 units to just 482,691 units. YTD, motorcycle sales are down 24.3%. This should also mean that as government spending picks up (expected from May) and as BI relaxes macro-prudential controls on bank lending, the contraction in retail sales and imports should stabilise, adds Barclays.