Indonesia: Current Account deficit shrunk in Q2 – UOB

Economist Enrico Tanuwidjaja and Haris Handy at UOB Group assessed the latest Current Account figures in Indonesia.

Key Quotes

“Indonesia’s current account deficit (CAD) narrowed in 2Q20 to USD2.9bn (-1.2% of GDP) from the deficit of USD3.7bn (-1.4% of GDP) seen in the previous quarter; attributable to the trade surpluses and a declining deficit in the balance of primary income. The goods trade balance posted USD4.4bn surplus in 2Q20 (vs. 1Q20’s +USD4.4bn), caused by weakening imports and domestic demand amid restrictions to curb COVID-19 pandemic in the April to June period.”

“Meanwhile, the deficit in the service balance rose slightly, underpinned by a shortfall in travel services caused by a significant drop in the number of foreign tourist arrivals. On the other hand, remittances from Indonesian migrant workers (secondary income balance) declined, as a result of the worsening global economy.”

“The capital and financial account, which records trade in assets between Indonesians and foreign counterparts, posted a significant surplus compared to the previous quarter, along with declining uncertainty in the global financial market.”

“For 2020, we expect the CAD to narrow from the 2019’s position, underpinned by a decline in goods and services imports amidst weaker domestic demand due to COVID-19 pandemic. Nonetheless, the pace of narrowing CAD remains measured as we expect the imports and primary income deficit to pick up slightly in 2H20 due to the relaxation large-scale social restriction, which leads to relatively stronger economic activity and higher income from the lowest level in 2Q20. On the balance, we expect CAD to narrow to -1.4% of GDP this year. Meanwhile, BoP position will remain resilient, attributable to the uncertainty in global financial markets which slowly dissipate, coupled with stable and favourable domestic growth outlook in the medium-term. We expect the positive investors’ perceptions to return gradually and bring more stability for the Indonesia external sector.”