Indonesia in need of stronger investment

Non-oil export growth was the worst in 3 years.

Weak investment growth continues to plague Indonesia’s economy, and imports of capital goods are still falling.

According to a report by DBS, the overall trade balance recorded a surplus of USD 0.7bn, similar to January’s. Notably, for the first time since early-2012, the oil trade balance recorded a surplus, which came in about USD 175mn in February.

But this must have been hardly surprising though, given the understanding that lower oil price (keeping everything else constant) work in favour of Indonesia, a net oil importer.

The trade surplus also came about even as exports fell 16% (YoY) in February. For all the encouraging signs seen in exports of manufactured goods, non-oil export growth came in a disastrous -12.7%, its worst performance since 3Q12. Poor commodity prices may to weigh on overall export growth, at least in the near-term.

DBS says that more importantly, and perhaps something that markets often overlook, the trade data continues to indicate weak investment growth in the economy. Imports of capital goods are still falling. Given the relatively high import content of production, there are valid concerns for GDP growth potential in the medium-term. How fast investment growth recovers is critical to our 2015 and 2016 GDP growth estimates. While we expect investment growth at around 5.0% this year, signs have been rather disappointing thus far.