China’s exports unexpectedly fell 6.4 percent last month from a year earlier, while imports tumbled by a deeper-than-forecast 16.2 percent, fueling expectations that Beijing would quickly roll out more stimulus to avert a sharper economic slowdown.
The dismal trade performance raises the risk that second-quarter economic growth may dip below 7 percent for the first time since the depths of the global financial crisis, adding to official fears of job losses and growing levels of bad debt.
“This is bad. I expect an interest rate cut this weekend,” economist Tim Condon at ING in Singapore said.
Photo: AP
“This is going to make 7 percent [GDP] growth hard to attain. It looks like the weakness in the first quarter wasn’t transitory. It’s persistent,” Condon said.
The People’s Bank of China has lowered interest rates and banks’ reserve requirement ratio (RRR) thrice in three months since November last year to stoke the economy, and most analysts had expected it to loosen policy again on both fronts in coming months.
Policy insiders told Reuters this week that China’s leaders have been caught off guard by the sharpness of the downturn, and are likely to resort to fiscal stimulus to revive growth after a flurry of monetary policy easing has proved less effective than hoped.
Imports have been weaker than exports, falling 16.2 percent last year from a year earlier, according to data released by China’s General Administration of Customs yesterday, highlighting tepid domestic demand as the world’s second-largest economy slows.
Analysts polled by Reuters had expected exports to rise 2.4 percent last month after a 15 percent plunge in March, and predicted imports would fall 12 percent after a 12.7 percent drop the previous month.
Economists at Nomura expect annual economic growth to slow to 6.6 percent in the second quarter from 7 percent in the first quarter, and are pencilling in three more 25-basis-point rate cuts and two more 50bps cuts in banks’ reserve requirements for the rest of the year, which would mark the central bank’s most aggressive easing campaign since the global crisis.
Buffeted by lukewarm foreign and domestic demand, China’s trade sector has wobbled in the past year, adding to pressure on the slowing economy and unsettling policymakers.
Earlier this week, China’s trade minister said the devaluation of currencies by some countries has led to sharp gains in the yuan, hurting the competitiveness of Chinese exports.
The yuan has gained against major non-dollar currencies in recent months, leading to its rise on a trade-weight basis. However, Chinese Premier Li Keqiang (李克強) has ruled out a devaluation, even as the economy faces headwinds.
While some exporters said they have not felt the impact of a rising yuan, thanks in part to the growing popularity of currency hedging options, few doubt that sales would suffer in coming months if the yuan sustains its ascent.
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