China’s trade unexpectedly shrinks as COVID curbs, global slowdown jolt demand

  • China’s exports and imports unexpectedly decreased in October
  • The weak data further dealt a blow to the struggling economy
  • Global recession threats, China’s COVID restrictions cloud the outlook
  • Analysts expect further weakness in exports and imports

BEIJING, Nov 7 (Reuters) – China’s exports and imports unexpectedly fell in October, the first simultaneous declines since May 2020, as a perfect storm of COVID restrictions at home and a global recession dented demand and weakened the struggling economy. made the future even darker.

The troubling data underscores the challenges for policymakers in China as they continue to take measures to contain the pandemic and try to weather rising inflation, a sharp rise in global interest rates and a global slowdown.

October shipments fell 0.3% from a year earlier, a sharp reversal from September’s 5.7% increase, official data showed on Monday, and well below analysts’ expectations for a 4.3% increase. This was the worst performance since May 2020.

The data showed demand remained generally weak and analysts warned of more gloom for exporters in the coming quarters, as the country’s manufacturing sector and the world’s second-largest economy grapple with lingering COVID-19 restrictions and lingering property weakness.

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Chinese exporters have failed to benefit from the yuan’s prolonged weakening since April and the key end-of-year trading season, underscoring mounting strains for consumers and businesses around the world.

On Monday, the yuan fell 0.4% against the dollar in more than a week, from what it achieved in the previous session, as weak trade data and Beijing’s pledge to continue its strict zero-covid-19 strategy dampened sentiment.

“Weak export growth is likely to reflect weak external demand as well as supply disruptions from the COVID outbreak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing the COVID disruptions at Foxconn factories, a key supplier to Apple, as an example. .

Apple Inc ( AAPL.O ) said it expects lower-than-expected shipments of high-end iPhone 14 models after a major production cut at its virus-hit Zhengzhou plant.

“Going forward, we expect exports to decline further in the coming quarters… We think aggressive financial tightening and lagging real incomes from high inflation will push the global economy into recession next year,” said economist Zichun Huang. Capital economy.

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Growth in auto exports also slowed sharply to 60% from 106% in September, reflecting a shift from demand for goods to services in major economies, according to Reuters estimates based on customs data.

Total exports to China’s key markets of the United States and the European Union also fell in October by 12.6% and 9%, respectively.

Reuters Graphics

INTERNAL Wrinkles SLOW GROWTH

Nearly three years after the pandemic, China has pursued a tough policy on COVID-19 that has caused severe economic damage and fueled widespread discontent and fatigue.

October’s weak factory and trade figures suggested the economy was struggling to climb out of the mud after the final quarter of 2022 signaled that it picked up faster than expected in the third quarter.

The war in Ukraine, which has fueled already high global inflation, has exacerbated geopolitical tensions and further dampened business activity.

Chinese policymakers vowed last week to prioritize economic growth and pursue reforms as President Xi Jinping begins a new term in office, allaying concerns that ideology may take precedence, without a clear exit strategy.

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In October, domestic demand, partially reduced by new COVID restrictions and blockades, hurt importers.

Inbound shipments fell to 0.7% from a 0.3% increase in September, below expectations for a 0.1% increase, the worst result since August 2020.

The severe impact of the pandemic’s strict measures on demand and property declines was also highlighted across a wide range of Chinese imports; Soybean purchases fell to an eight-year low last month, while copper imports fell and coal imports eased after hitting a 10-month high in September.

Analysts say that in addition to the global slowdown, weak domestic consumption will weigh more heavily on China’s economy for some time to come.

“Weak domestic demand is a key constraint on China’s short-term recovery and long-term growth trajectory,” said Bruce Pang, chief economist at Jones Lang LaSalle.

Reporting by Ellen Zhang and Ryan Wu; Edited by Sri Navaratnam

Our standards: Thomson Reuters Trust Principles.

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