04/09/2012 (Business Times) - Indonesia's trade deficit in July surprisingly narrowed from a record gap in June as import growth slowed, though Southeast Asia's biggest economy needs steady improvements in its trade picture to take the pressure off a weakening rupiah.

Worries over the trade deficit, which had been expected to widen to US$1.5 billion in July from June's US$1.33 billion, pushed the currency down to near a three-year low on Monday as foreign investors cut exposure to the country's bonds.

Exports from Southeast Asia's largest economy fell 7.27 per cent in July from a year earlier, a fourth straight month of decline. But the slide was smaller than the 9.2 per cent drop forecast in a Reuters poll.

Import growth slowed to just 0.75 per cent versus a forecast of 6.6 percent, after double-digit rises for the rest of the year, in a rare sign of slower domestic consumption. This narrowed the trade deficit to just US$180 million.

The currency weakened another 0.5 per cent after Monday's came out, taking losses this year for emerging Asia's worst performing currency to 5.7 per cent.

However, stocks picked up 0.8 per cent after the trade figures came out.

"The trade numbers are better than expected and it should give positive sentiment to the market, mainly on the rupiah...

and it should do good for the stock market too," said Priyo Budi Santoso, chief investment officer at Jakarta-based Mandiri Manajemen Investasi, which manages more than $2.3 billion in assets.

Exports of oil, gas and coal by value all fell sharply in July, though shipments of palm oil rose, the data showed.

The growth in palm oil may have come as Asian buyers sought a cheaper vegetable oil instead of soybeans, which have seen higher prices because of a US drought.

Commodities account for 70 per cent of Indonesia's exports, a fact that is leading policymakers to try to upgrade the economy towards higher value manufacturing.

July's exports "continued to indicate that Indonesia's balance of payment position would remain under pressure due to the weak external demand and still relatively poor commodity prices," said Gundy Cahyadi, economist at OCBC in Singapore. Reuters