In a twist of events, Indonesia's trade dynamics defied expectations in December, revealing a notable trade surplus driven by an unexpected drop in imports. While export figures declined by 5.8% year-on-year (YoY), the real surprise came from a 3.8% YoY contraction in imports, in stark contrast to the anticipated 0.2% gain.
The decline in exports was felt across various sectors, with coal shipments plummeting by 19.1% YoY and palm oil exports experiencing a substantial drop of 31.9% YoY. On the flip side, imports saw a broad-based reduction, with capital goods registering a significant 9.9% YoY decline. However, consumer imports bucked the trend, rising by a noteworthy 13.5% YoY, reflecting the resilience of domestic consumption.
The overall trade balance reflected a robust surplus, settling at $3.3 billion, surpassing expectations of $1.9 billion. Despite this positive outcome, the trade surplus remains below the record high observed in 2022, signaling potential challenges for the Indonesian Rupiah (IDR). Given the expectation of subdued global trade in 2024, this trend may persist throughout the year.
The widened trade surplus suggests the IDR could still benefit from a current account surplus. Despite the positive trade balance, it falls short of the peak recorded in 2022. In light of the modest depreciation pressure on the IDR in the short term, it is anticipated that Bank Indonesia (BI) will maintain its policy rates at 6% in the upcoming decision this week.
While the unexpected trade surplus provides some support, uncertainties surrounding the awaited Federal Reserve pivot may influence BI to uphold its current restrictive stance for the first half of the year. This approach aims to bolster the currency while remaining vigilant against potential food inflation spikes linked to the ongoing El Niño weather phenomenon. As the global economic landscape continues to evolve, Indonesia remains watchful of external factors that could impact its trade dynamics.