[JAKARTA] Indonesia’s exports rebounded in May after a lacklustre April, giving the country’s trade surplus a shot in the arm. But while the recovery offers a glimmer of hope, analysts note that dark clouds remain on the horizon amid lingering uncertainty around the United States’ tariffs.
Data released by the Indonesian statistics agency on Tuesday (Jul 1) showed that exports surged 9.68 per cent year on year (yoy) in May, far exceeding the 0.4 per cent rise expected in a Reuters poll.
The recovery was powered by strong shipments of palm oil, basic metals, jewellery, semiconductors and organic base chemicals, said the agency’s deputy of statistics, Pudji Ismartini.
The export surge pushed the country’s trade surplus to US$4.3 billion in May, a dramatic turnaround from just US$160 million the month before.
Indonesia’s exports of iron and steel to China rose by 31.56 per cent, even as looming US tariff threats clouded the trade outlook.
Still, analysts believe the rebound may prove fragile.
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“US tariffs on Chinese goods, though reduced to 30%, are still elevated compared to pre-trade war levels. This continues to weigh on global demand and Indonesia’s exports, particularly as commodity prices soften and China’s economic slowdown persists.”
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Josua Pardede, chief economist at Permata Bank
While US-China trade tensions have eased following a recent agreement, uncertainty continues to hang over several countries, including Indonesia, as US President Donald Trump’s Jul 9 deadline on tariff reviews approaches. The US has signalled that extensions are unlikely, raising concerns over possible new duties.
“Despite the easing tensions, Indonesia continues to face external headwinds,” said Josua Pardede, chief economist at Permata Bank.
“US tariffs on Chinese goods, though reduced to 30 per cent, are still elevated compared to pre-trade war levels. This continues to weigh on global demand and Indonesia’s exports, particularly as commodity prices soften and China’s economic slowdown persists.”
South-east Asia’s largest economy faces steep tariffs of 32 per cent under Trump’s trade measures.
Radhika Rao, senior economist at DBS, said that the strong exports in May likely reflected the continued front-loading of demand ahead of the July deadline, with shipments to the US, in particular, growing by double digits.
Indonesia’s shipments of machinery and electronic equipment to the US rose by 18 per cent between January and May, while its imports of mechanical machinery and equipment from China increased 22.9 per cent over the same period.
“Imports from China have also risen, suggesting rerouting of exports through the region to take advantage of the tariff differential,” Radhika said.
Indonesia’s imports grew 4.14 per cent yoy, though they edged down by 1.32 per cent on a monthly basis, cooling off after a notable spike in April.
One of the biggest drops came from precious metals, with imports plunging 78.39 per cent month on month. This likely reflected waning gold appetite in May as trade tensions began to ease.
Weaker domestic demand is helping to contain import growth, preserving a healthy trade surplus, Pardede said. Meanwhile, falling oil prices amid de-escalation in the Middle East are also providing some relief to the country’s external balance.
Indonesia’s exports of crude and refined palm oil soared 53 per cent yoy in May, reaching 1.88 million tonnes, driven by strong demand from India.
Inflation remains on target
On the inflation front, consumer prices crept up by 1.87 per cent yoy in June, snapping back after a brief dip into deflation in May, official data indicated.
Volatile food inflation spiked, driven by a jump in prices of household staples such as shallots, rice, tomatoes, and bird’s eye chillies.
Annual headline consumer price index (CPI) inflation picked up pace in June, rising to 1.87 per cent yoy from 1.6 per cent in May. Meanwhile, core CPI inflation held steady, falling slightly to 2.37 per cent yoy from 2.4 per cent the previous month.
Administered price inflation crept up, fuelled mostly by higher airfares during the school holiday rush, though this was tempered by a drop in non-subsidised fuel prices after official price tweaks.
Pardede noted that inflation is expected to stay within Bank Indonesia’s target range of 1.5 to 3.5 per cent until the end of 2025.
He said the impact of rupiah depreciation on inflation, or imported inflation, is gradually fading as global uncertainties ease.
“Risks tied to the ‘trade war 2.0’, especially reciprocal tariffs, have eased following the US-China trade agreement, encouraging capital inflows. This has helped soften the risk of inflation passing through from producers to consumers.”
