BEIJING, June 7 (Portal) – China’s exports contracted much faster than expected in May while imports continued their declines. The outlook for global demand, particularly from developed markets, was bleak, casting doubt on the fragile economic recovery.
The world’s second-largest economy grew faster-than-expected in the first quarter, thanks to resilient services consumption and an order backlog after years of COVID disruptions. However, factory production has slowed as rising interest rates and inflation depress demand in the United States and Europe.
Data from China’s Customs Service on Wednesday showed exports fell 7.5% yoy in May, much more than the forecast 0.4% drop and the sharpest drop since January. Imports shrank 4.5%, slower than the expected 8.0% decline and April’s 7.9% decline.
Portal graphics
“Weak exports confirm China’s reliance on domestic demand as the global economy slows,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “For the remainder of the year, there is greater pressure on the government to boost domestic consumption as global demand is likely to weaken further in the second half of the year.”
The data highlights the extent of the weakness, showing trade was even worse than when the port of Shanghai, China’s busiest port, was shut down a year earlier due to strict COVID restrictions.
The numbers also add to a growing list of indicators suggesting that China’s economic recovery from the COVID crisis is rapidly losing momentum, underpinning the case for more policy stimulus.
DEMAND SQUEEZE
Asian stocks fell after the data, as did the yuan and the Australian dollar, a commodity currency very sensitive to swings in Chinese demand.
Archival photo of Qingdao Port. /Photo Awards May 9, 2022 in Qingdao, China/China Daily
China’s post-pandemic equity rally has faltered as retail investors turn bearish on equities in favor of safer assets amid a faltering economic recovery.
The economy has been hit by a twin drag from weakening domestic and foreign demand, which has had an impact across the region.
South Korean data last week showed shipments to China fell 20.8% in May, marking a full year of monthly declines, with Korean semiconductor exports falling 36.2%, reflecting weak demand for components for the Finishing closes.
Chinese imports of semiconductors slipped 15.3% as the market for consumer electronics exports containing such parts weakened.
Demand for commodities weakened broadly as coal imports fell from a 15-month peak in March on subdued demand in the energy and steel sectors. Copper imports fell 4.6% yoy in May.
China’s official Purchasing Managers’ Index (PMI), released last week, showed that factory activity contracted faster than expected in May.
The PMI sub-indices also showed that factory output contracted on expansion, while new orders, including new exports, fell for the second month.
While economic growth beat expectations in the first quarter, analysts are now lowering their forecasts for the rest of the year as factory production slows.
The government has set a modest GDP growth target of around 5% for this year after falling well short of the 2022 target.
“Looking ahead, we expect exports to fall further before bottoming out later this year,” said Julian Evans-Pritchard, head of China economics at Capital Economics. “Although interest rates are near peaks outside of China, the lagged impact of sharp rate hikes will weigh on activity in developed economies later this year, triggering mild recessions in most cases.”
Reporting by Joe Cash; Edited by Sam Holmes
Our standards: The Trust Principles.
Joe Cash