Indonesia's rising imports contribute to widening trade balance

Imports of Indonesia have remained robust as the domestic demand-driven economy outperformed its peers, says DBS.

DBS Group Research noted:

The widening trade balance is usually attributed to depressed commodity prices. While it is true as coal, rubber and palm oil prices have tumbled significantly over the past year, commodity prices are only half the story.

Indonesia’s imports have remained robust as the domestic demand-driven economy outperformed its peers. This can best be explained by Indonesia’s investment-led growth model.

Record-low global interest rates have provided the central bank leeway to cut its policy rate and allow investment-driven growth to take off. Capital goods and raw material imports have been rising on an absolute basis since 1Q09 despite the flare up of the Eurozone crisis in 2H11.

Forming the bulk of imports, these two components pulled up total imports even though the nominal value of consumer goods has gone sideways since July last year. The central bank has already embarked on selective monetary tightening through stricter conditions for vehicle and property loans. Selected interest rates have also been allowed to rise.

Coupled with a weaker rupiah, import demand should be dampened accordingly in the coming months, reducing pressure on the trade balance.