AUGUST’S SLOWER THAN expected growth in China’s exports is another sign that the economy’s recovery is losing what little traction it had.
More policy support is likely as a consequence.
Exports grew by 7.1% last month year-on-year in US dollar terms, according to the General Administration of Customs, the slowest since April and almost half the expectation of private economists.
As much as half the growth was accounted for by higher prices, on some estimates, implying the growth in the volume of exports was even weaker than the headline number.
Imports grew 0.3% in value, down from an increase of 2.3% in July, also well below expectations.
Domestic factory output in August also contracted for a second consecutive month due to power cuts and lockdowns in response to worsening Covid outbreaks.
At the same time, weakening global demand is lessening the demand for China’s exports in most of its major markets, except Russia (up 26.5% in August, year on year).
Weaker exports will weigh on the yuan, which is close to breaching seven to the dollar, despite intervention by the People’s Bank of China.
A depreciating currency would be a boon to struggling exporters but not to domestic consumer businesses such as food and retail companies that have to bear the cost of rising commodity imports.
President Xi Jinping will be well aware of the impact on Chinese citizens as he prepares for an unprecedented third term. That implies further currency intervention as well as other measures to stimulate the economy.