China’s July exports contracted the most since the start of the pandemic. It shows a tough external market for the world’s factory when it needs it the most.

China’s post-COVID has been hit by falling demand both domestically and internationally.

CFOTO/Future Publishing via Getty Images

China’s exports contracted 14.5% on-year in July, worse than the 12.5% fall analysts had expected.
Imports into China fell 12.4% on-year in July, far more than the 5% decline analysts had expected.
The two readings reflect weak demand both, externally and internally for China’s post-COVID economy.

China’s facing a double whammy of more bad news in its post-COVID economy, as its imports and exports are both down in July. 

The world’s second-largest economy has been grappling with flagging growth, a real-estate crisis, and record youth unemployment — all of which have hit the country’s domestic demand.

With China’s second-quarter GDP growth missing expectations alongside a slew of disappointing economic data recently, the country needs all the help it can get as the factory of the world.

However, global demand is also weakening for China, as trade data released on Tuesday showed.

China’s exports in dollar terms contracted 14.5% in July from a year ago, making their worst on-year contraction since the COVID-19 pandemic started in early 2020, according to the official data. Analysts polled by Reuters had expected exports to contract 12.5% after they fell 12.4% on-year in June.

The contraction in exports was broad-based across all of China’s major trading partners amid global economic uncertainty and as central banks globally hike interest rates to tame inflation.

Exports to the European Union and Southeast Asian countries registered the largest declines from June, wrote Louise Loo, lead economist at Oxford Economics in a Tuesday analysis of China’s trade data.

In particular, high-tech products — which make up a quarter of China’s total goods exports — fell 4.4% on-month in July, marking its fourth straight month of decline, Loo added.

Meanwhile, China’s consumer demand isn’t that upbeat either, the July import data shows. Shipments into the country fell 12.4% in July from a year ago, widely missing a 5% forecast, per the Reuters poll.

In particular, imports from the US fell 11.4% over the same period, according to a Nomura analysis based on trade-related indicators. This sharp decline in imports could have been due to “highly restrictive US embargos on semiconductor exports, which continued to hamper China’s imports of goods from the US,” Nomura economists wrote in a Tuesday note seen by Insider.

“These readings point to worsening growth prospects,” the economists wrote. “A worsening export contraction means weaker production, while rapidly deteriorating imports reflect weaker demand within China.”

To boost its flagging economy, China recently rolled out a series of plans to boost local consumption to charge its flagging economy — but these may not be enough, say analysts.

The Nomura economists expect China’s exports to contract at a similar scale until the end of the year and the country’s growth to take longer to rebound given the “double-whammy of the collapsing property sector and contracting exports.”

Read the original article on Business Insider


Related articles