BEIJING, June 7 (Reuters) – China’s exports shrank much faster than expected in May, while imports extended their decline with a gloomy outlook for global demand, especially from developed markets, raising doubts about the fragile economic recovery.
The world̵[ads1]7;s second-largest economy grew faster than expected in the first quarter thanks to robust services consumption and order backlog after years of Covid disruptions, but factory output has slowed as rising interest rates and inflation squeeze demand in the US and Europe.
Exports fell 7.5% year-on-year in May, data from China’s customs office showed on Wednesday, much larger than the 0.4% drop forecast and the biggest drop since January. Imports fell 4.5%, slower than an expected 8.0% decline and April’s 7.9% decline.
“The weak exports confirm that China must rely on domestic demand as the global economy slows,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “There is more pressure for the government to increase domestic consumption for the rest of the year, as global demand is likely to weaken further in the second half of the year.”
Underscoring the extent of the weakness, the data showed trade was worse even than when the port of Shanghai, China’s busiest, was closed due to strict COVID curbs a year earlier.
The numbers also add to a growing list of indicators that suggest China’s post-COVID-19 economic recovery is quickly losing steam, strengthening the case for more policy stimulus.
CLAIM A HUG
Asian shares fell in the red after the data, as did the yuan and the Australian dollar, a commodity currency that is highly sensitive to swings in Chinese demand.
China’s post-pandemic stock rally has faded as retail investors turn bearish on stocks and instead double down on safer assets amid a faltering economic recovery.
The economy has been hit by a double shock of faltering demand at home and abroad with the ripple effects felt 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%, suggesting weak demand for components for final production.
Chinese imports of semiconductors fell 15.3%, as the market for consumer electronics exports that include such parts softened.
Demand for commodities largely weakened with coal imports retreating from a 15-month high hit in March amid weak appetite from the power and steel sectors. Copper imports fell 4.6% in May from a year ago.
China’s official Purchasing Managers’ Index (PMI) released last week showed factory activity shrank faster than expected in May.
The PMI’s sub-indices also showed that factory output eased from the expansion while new orders, including new exports, fell for a second month.
While economic growth beat expectations in the first quarter, analysts are now downgrading their forecasts for the rest of the year as factory output slows.
The government has set a modest GDP growth target of around 5% for this year, having badly missed the 2022 target.
“Looking ahead, we think exports will fall further before bottoming out later this year,” said Julian Evans-Pritchard, head of China economics at Capital Economics. “Although interest rates outside of China are near a peak, the lagged effect from the sharp rate hikes is set to dampen activity in developed economies later this year, triggering mild recessions in most cases.”
Reporting by Joe Cash; Editing by Sam Holmes
Our standards: Thomson Reuters Trust Principles.