Indonesia’s export drops by 11.33%
The US-China trade war and the declining global economy is negatively affecting Indonesia’s exports, especially since China and the US are the largest and second largest export destination for the country, respectively. In fact, exports from Indonesia has declined by 11.33% in February 2019 compared to a year earlier. This value is much lower than the market consensus of a 4.5% decline and is the largest export slump since June 2017.
Despite Indonesia’s forecast of declining exports, Coordinating Economic Minister Darmin Nasution asserts that Indonesia economy will still grow by 5.3% in 2019. This is because the severity of impact on Indonesia economy also relies on the country’s imports.
Last year, Indonesia’s exports valued at US$180 billion while their imports valued at US$188.6 billion, resulting in a trade deficit of US$8.57 billion. The largest export segment for last year was commodities at US$162.6 billion. Imports in 2018 also increased from 2017 by 20.15%.
Global economic slowdown negatively affects Asian economics
According to Chen Dong, senior Asia economist at Pictet Wealth Management, major Asian economies has continuously been declining since its peak at the end of 2017. However, the rate of economic decline has been picking up towards the end of last year and is predicted to continue at least until the first half of this year.
Other than the Indonesia economy, other Asian economies that are experiencing declining exports include Japan, the Philippines, and exporting powerhouses South Korea and Taiwan. In Japan, machine orders (exclude ships and electrical equipment) dropped by 5.4% month-over-month, a much larger decline that the expected 1.7% fall. Similarly, South Korea also saw exports fall by 11.1% in February. The Philippines also saw its exports in January decline by 1.7%, although the value is much smaller than December’s 12% drop.
Indonesia signs trade deals to recover export growth
To improve export conditions in Indonesia economy, the government have signed or are in talks to enter trade agreements with numerous countries and blocs worldwide. Indonesia economy have recently entered a free trade pact with Australia after years of trade talks. Officials also say the country is close to clinching deals with Turkey, Iran, and the European Union and is looking to enter a China-backed 16-countries Regional Comprehensive Economic Partnership.
One reason for Indonesia’s push in trade talks with traditional and non-traditional markets is because successful trade talks ensure trade partners will give a higher preference to Indonesian products, says Indonesian Trade Ministry’s Bilateral Negotiations Director Ni Made Ayu Marthini. For instance, the Indonesia-Australia Comprehensive Economic Partnership Agreement will drive exports to Australia as some commodities are exempted from import duty.
Other than gaining easier access to these markets, the Indonesian economy government is seeking to obtain preferential tariffs and cheaper export financing through trade agreements.