Indonesia’s goods trade surplus widened to a three-year high of $5.5bn in August, largely due to a decline in imports (-6.6% yoy), while exports slowed to 6% yoy vs 10%, month before. Amongst the key sectors, palm oil exports jumped 51% yoy, besides higher electrical machinery and vehicle exports, whilst mineral fuels declined by 13.5% and footwear slowed to 3.4% yoy. There were early signs of a passage of frontloading in demand, as exports to the US slowed to 3% yoy (-12.4% mom) compared to average 25% yoy in 7M25. Growth in exports to the key Asean market rose 5.4% yoy, besides China by 12.2%. Reflecting a subdued domestic economy and softening re-export demand, non-O&G imports shrank 8% yoy, on slower inbound purchases of machinery, vehicles & accessories, iron & steel, chemicals etc. Nonetheless, the resilience in the goods trade balance, which has grown by 50% yoy in 8M25 bodes well for the current account health and IDR. The mandatory requirement to route part of the export proceeds for selected sectors back to the onshore markets will help prop up dollar liquidity, if also accompanied by attractive returns on such deposits. After successfully concluding a trade deal with the EU, Indonesia has also signed a FTA with Canada, in a bid to diversify its mix of trading partners.
Separately, Sep inflation quickened to 2.7% yoy vs 2.3% month before on higher food and gold prices. While food costs were up, we expect these pressures to subside as the government unveiled stimulus measures, which include rice and cooking oil supplies to vulnerable households for this quarter. Coordinating Minister for Economic Affairs Airlangga was also cited saying more stimulus measures were in the pipeline. For the central bank, inflation is less of a concern in the near-term as focus shifts to growth stability. We expect 50bp cuts within this quarter and the next but would not be surprised if these are frontloaded to 4Q25. Rupiah was under pressure after the unexpected rate cut last month attracting intervention at lows. With the US government shutdown assuming significance this week, the resultant dollar slippage might provide the rupiah, and its peers, a breather. Our FX forecast for modest gains in the rupiah by year-end, is premised on a softer dollar and stabilisation in the domestic political economy.
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