Hong Kong- In a significant blow to the world’s second-largest economy, China’s exports experienced their largest decline in more than three years in July as global demand faltered. Chinese customs statistics released on Tuesday revealed a 14.5% drop in the value of exports measured in US dollars compared to the same period last year. This marks the third consecutive month of declining exports, raising concerns for Beijing as it seeks ways to reinvigorate its economy.
Analysts from Capital Economics noted that the steep drop is partly a reflection of last July’s high export numbers and lower prices. After accounting for seasonality and export price changes, they estimated that export volumes only experienced a marginal 0.9% decline in July compared to June.
However, the outlook for exports remains challenging, with analysts projecting further declines in the coming months. The ongoing global goods demand slump, driven by pandemic distortions unwinding and monetary tightening affecting consumer spending, is expected to exert more pressure on China’s exports.
For the first seven months of the year, China’s exports declined by 5% compared to the same period in the previous year. Notably, shipments to the United States, China‘s largest trading partner, dropped by 13%.
Exports had been a crucial support for China’s economy during the pandemic years, offsetting the impact of strict COVID-19 lockdowns and a weak housing market. However, since October last year, exports have shrunk due to surging inflation and rising interest rates impacting global demand.
The weakening exports add to the challenges faced by the Chinese economy, which has experienced a loss of momentum after a strong start to the year. Signs of deflation are emerging, raising concerns about the possibility of a prolonged period of stagnation.
China’s imports also faced a decline, falling 12.4% in July compared to the same period last year, well below the 5% forecast by analysts in a Reuters poll. This indicates a softening of the country’s domestic demand, with import volumes reaching their lowest level since the beginning of the year.
Analysts are now urging Beijing to implement more concrete and robust plans to bolster the economy, including significant measures to boost demand. The People’s Bank of China, which sets the daily range for yuan trading, pegged the midpoint for the currency at 7.1565 to the US dollar on Tuesday, weaker than the previous day’s 7.138.
The weaker trade figures and lower yuan fixing triggered a drop in the Chinese currency in foreign exchange markets, with the offshore yuan weakening 0.3% against the US dollar on the same day.
Investors are looking for stronger policy measures from Beijing to support the economy, as the current measures have not been deemed sufficient. In this context, a depreciation of the yuan could be seen as a tool to support China’s exports and facilitate economic recovery.
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