China: Merchandise exports drop by double digits in July
Merchandise exports sank 14.5% over the same month last year in July (June: -12.4% year-on-year). July’s result marked the largest fall since February 2020. Meanwhile, merchandise imports plummeted 12.4% on an annual basis in July (June: -6.8% yoy), marking the weakest result since January 2023. The drops in both exports and imports were more pronounced than markets had expected, reflecting weak domestic and external demand, as well as the negative impact of trade and political tensions with the West. Exports fell across all key markets except Russia.
As a result, the merchandise trade balance improved from the previous month, recording a USD 80.6 billion surplus in July (June 2023: USD 70.6 billion surplus; July 2022: USD 100.0 billion surplus). Lastly, the trend pointed down, with the 12-month trailing merchandise trade balance recording a USD 873.2 billion surplus in July, compared to the USD 892.6 billion surplus in June.
Looking ahead, the Consensus is for exports to contract year on year in Q3 as a whole but to return to growth in Q4 thanks to a more favorable base of comparison.
EIU analysts said:
“China’s exports are unlikely to return to positive year-on-year growth territory until the fourth quarter of 2023, putting pressure on China’s economic recovery and the renminbi exchange rate. […] Russian demand, on its own, will neither stabilise nor reverse China’s declining export performance in the coming months.”
UOB analysts were even more downbeat:
“Taking into account of the sharper than expected contractions to-date, we revise our forecast for exports and imports decline this year to -6.0% (from – 3.0%) and -7.0% (from -2.0%) respectively. For both, the monthly contractions trend may be extended to the end of 2023, though the magnitude would likely ease as the base effect turns more favourable.”