Original post:
Looks like a fine excuse for more stimulus.
From the Wall Street Journal's China RealTime blog:
Economists React: Imports Slump, While Exports Fail to Impress
China’s May trade data showed more signs of weakness in demand both at home and abroad. Exports were somewhat better than expected during the month, falling 2.5% year on year but showing less of a decline than the 6.4% drop in April. Nonetheless, they recorded the third year-over-year monthly drop in a row. While exports to the U.S. held up with gains of nearly 8% year over year in the month, exports to most other key markets were flat or down.
Meanwhile, weak domestic demand, despite government economic stimulus measures, sent imports sharply lower. Imports slid 17.6% compared with a year ago, worse than expected and showing a bigger drop than April’s 16.2%. The weakness in imports pushed the trade surplus to $59.49 billion from $34.1 billion in April, exceeding market expectations.
Economists weigh in on the trade data. Their comments are edited for length and clarity:
Despite the improvement, exports remain weak. In the year-to-date, they have grown 0.7% year over year, down from growth of 6% last year. … Looking ahead, we expect headline trade growth to gradually recover over the coming quarters. Stronger growth in the U.S., after a weak first quarter, ought to boost external demand. Meanwhile, we expect continued government policy efforts to shore up domestic demand and begin to provide some support to imports. Finally, the sharp fall in global commodity prices during the second half of last year will provide a much weaker base for comparison that will push up import values and, to a lesser extent, export values. — Julian Evans-Pritchard, Capital Economics...MORE
Exports came in better than the median forecast and our own in May. However, the improvement was quite mild sequentially, and does not suggest a meaningful recovery ahead. Processing exports continued to contract by more than 10% in year on year terms, pointing to soft demand at the end of the supply chain. Although the U.S. economy is expected to rebound in the second quarter, we expect the export outlook to remain challenging in the coming months, partly due to a strong currency. We have downgraded our 2015 export growth forecasts from 7.1% to 4.2% The contraction in imports widened in May. Even as commodity prices have started to stabilize sequentially, the drag in year-on-year terms remain sizable. In addition, domestic demand is still soft. Imports of commodities in volume terms contracted further in May compared with previous months, pointing to sluggish domestic investment growth. … We continue to expect more monetary and fiscal easing measures in the coming weeks. — Julia Wang and Jing Li, HSBC Global Research
Falling commodity prices could explain part of the disappointing import data but not the whole story. Even if the prices for oil and iron ore had stayed the same as one year ago, China’s imports would still have dropped by 10% year on year in May. Therefore, domestic demand is likely to be the main drag.
With our current forecast on exports and imports, China’s trade surplus will rise to $592 billion in 2015 (against around US$380 billion in 2014). If this proves to be true, it would be the largest trade surplus China has ever seen. – Larry Hu, Macquarie Securities
The recent slowdown in import growth was driven more by prices and less by demand. In the January-February period, the decline of import quantum contributed more than half of the import slowdown, and this ratio had dropped to about 20% in March and April. The strong yuan weighed on export growth to the EU and Japan but not to India, suggesting the impact of a strong yuan is mixed. Further policy easing in China and possible Fed hikes could be risks to derail a stable yuan against the dollar. But the pressure could first mean faster declines in foreign exchange reserves rather than imminent yuan depreciation. — Minggao Shen and Serena Wang, Citigroup
Update:
Slide in China’s May imports signal need for more stimulus
