(Bloomberg) -- China’s exports growth unexpectedly slowed in July, signaling a cooling of global demand that has been propping up growth in the world’s second-biggest economy.
Exports rose 7% in July in dollar terms from a year earlier, falling short of economists’ median forecast of a 9.5% gain, according to data from the customs administration Wednesday. Meanwhile, imports beat expectations and expanded 7.2%, narrowing a trade surplus to $84.65 billion from the previous month.
The decelerating exports suggest slowing global demand, which has been a key support this year for China’s economy as domestic consumers tightened their purse strings. That threatens the growth outlook for the rest of this year, after the economy expanded at the slowest pace in five quarters in the April-June period.
“Judging from the current situation, external demand is weakening,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. “Even though momentum is still strong in the electronics sector, the cooling of overall manufacturing activity will definitely affect trade.”
Exports to Japan, UK, Russia and Australia all contracted in July, reversing from expansion in the month before, while the fall in shipments to Singapore deepened.
Falling export prices, which have persisted since mid-2023, likely also contributed to the slowdown in overseas shipments. Capital Economics estimates that export volumes softened slightly in July but remained close to record highs after accounting for changes in export prices and for seasonality.
What Bloomberg Economics Says...
China’s unexpected export slowdown in July suggests foreign trade — the recovery’s key prop last quarter — may lend less support to 3Q GDP. The result is particularly concerning given the weakening outlook for the US economy, highlighted by the recent jump in American unemployment. Together with weakness in China’s retail sales, the trade data reinforce our view that 2024 growth is likely to undershoot the official 5% target unless more effective stimulus is adopted.
— David Qu, Economist
Read the full note here.
While the surge in imports may alleviate some concerns on weak domestic demand, the expansion was in part driven by short-term factors.
Xing said semiconductor makers likely rushed to front-load their equipment orders amid a potential tightening of US curbs on chips exports, fueling a 15% surge in the products’ imports in July from a year ago. Imports of crude oil also climbed 8%, as the government renewed import quota to companies for the second half of this year, he said.
Authorities’ recent call for faster use of government bonds to support infrastructure spending could boost construction activity and drive up demand for industrial commodities, Zichun Huang, China economist at Capital Economics, wrote in a note Wednesday.
The world’s second-biggest economy is off to an uneven start to the second half of the year after a steep slowdown, as weak domestic demand and a prolonged housing slump offset a boom in exports. The outlook for trade could meanwhile worsen as tensions ratchet up with Europe and the US over a surge of Chinese sales abroad.
With China’s trade surplus at a record $99 billion in June, the imbalance has spooked the country’s trade partners, who are seeking to protect their domestic industries with tariffs. A gauge of new export orders in China’s official manufacturing purchasing managers’ index indicated a contraction for a third straight month in July.
--With assistance from Yujing Liu.
(Updates with more details and comments.)
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