Indonesia: Current Account deficit forecast to shrink in 2020 – UOB

In opinion of Economist Enrico Tanuwidjaja and Haris Handy at UOB Group the Current Account deficit (CAD) is expected to narrow further in 2020.

Key Quotes

“Indonesia’s current account posted a USD1.0bn surplus (0.4% of GDP) in the July – September period, the first surplus since 3Q11. The result was attributable to the huge surplus of the goods trade balance (3Q20’s USD9.8bn vs 2Q20’s USD4.0bn); in line with the improvement of exports performance amidst economic recovery in Indonesia’s main trading partners and subdued imports due to weak domestic demand.”

“Meanwhile, the service account deficit slightly expanded, in light of an increase in the travel service deficit due to the lack of inbound travelers visiting Indonesia, as well as an increase in the deficit of other services such as telecommunications, computer, and information services in line with the rise of services imports to support online activities which have increased during the COVID-19 pandemic.”

“The capital and financial accounts, which records trade in assets between Indonesians and foreign counterparts, remained in a surplus albeit lower than the previous quarter.”

“Overall, the current account and the capital and financial account surpluses led Indonesia to register USD2.1bn of surplus in its Balance of Payment (BoP) in 3Q20 vis-à-vis USD9.2bn surplus in the second quarter.”

“For 2020, we expect the current account deficit (CAD) to narrow by a huge margin when compared to the 2019’s position, primarily 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. We expect CAD to narrow to -0.7% of GDP this year (from previous forecast of -1.1%) and widening to -2.0% of GDP next year on the back of recovery in import and higher yield payment on direct investment (wider deficit of primary income balance), in line with domestic economic recovery. Meanwhile, BoP position will remain resilient, attributable to the uncertainty in global financial markets which slowly dissipate, coupled with stable and favorable domestic growth outlook in the medium-term. We expect positive investors’ perceptions to return gradually and bring more stability for the Indonesia external sector.”