Indonesia’s slowing economic growth, the weak rupiah, slowing investment growth, and the lack of government spending are key factors that explain why domestic demand has declined in Indonesia, evidenced by falling imports. In the first quarter of 2015, Indonesia’s economic growth slowed to a six-year low of 4.71 percent (y/y). Given the weak import-export figures, concerns persist that economic growth will not accelerate yet in the second quarter of the year. Earlier this week, Indonesia’s central bank (Bank Indonesia) said that Q2-2015 GDP growth would remain limited, partly caused by weak consumer spending. In early August BPS will release the country’s official Q2-2015 GDP growth figure.

However, on a monthly basis, Indonesian imports grew 11.6 percent in June on the back of higher demand ahead of the Ramadan month (which started in mid-June) and Idul Fitri celebrations. Domestic demand and consumer spending always peak ahead and during these seasonal festivities, giving rise to import growth. However, it is impossible to analyze (using June trade data) whether domestic demand during this year’s Ramadan has declined as last year the Muslim fasting month started at the end of June.

On the other hand, weak imports help to improve Indonesia’s trade balance, current account balance and provide some support for the rupiah which has been depreciating amid bullish US dollar momentum since May 2013. Indonesia’s central bank expects the current account deficit to narrow to 2.5 percent of gross domestic product (GDP) in the second quarter of 2015. The deficit was at 3.9 percent of GDP in the same quarter last year. An improved current account balance would make the country less vulnerable to capital outflows caused by global economic turmoil.

Meanwhile, the rupiah depreciated slightly on Wednesday (15/07). Based on the Bloomberg Dollar Index, the currency depreciated 0.05 percent to IDR 13,346 per US dollar. Earlier this week, Bank Indonesia Governor Agus Martowardojo said the rupiah is currently trading at its fundamental value but that the central bank would remain active in the market in order to minimize volatility. The country’s foreign exchange reserves fell to USD $108 billion in June after the central bank used part of the reserves to support the rupiah. So far this year, however, the rupiah has depreciated over 7 percent against the US dollar.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.07 percent to IDR 13,329 per US dollar on Wednesday (15/07).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Cumulatively, Indonesia’s trade surplus totalled USD $4.35 billion in the first six months of 2015 (BPS announced that Indonesia’s May trade surplus was revised to USD $1.08 billion).