Beijing witnessed a worrisome setback in China’s economic growth as the country’s exports recorded a significant fall in May, marking the first contraction since February. Customs data released on Wednesday revealed a 7.5% year-on-year drop in exports, amounting to $283.5 billion. The figure was significantly worse than the 0.4% decline predicted by a Reuters poll.
Julian Evans-Pritchard, head of China Economics at Capital Economics, highlighted that the decline was so severe that export volumes dipped below their levels at the beginning of the year, even after adjusting for seasonality and changes in export prices. This trend indicates subdued global demand for Chinese goods, signaling potential challenges for the world’s second-largest economy.
While China’s exports slightly surpassed expectations in April with 8.5% year-on-year growth, the disappointing figures for May suggest a downward trend in the longer term, according to Hao Hong, chief economist at Grow Investment Group. Hong emphasized that China’s reliance on trade to boost its economy will face obstacles for at least another six months, citing lackluster demand from the United States, where high inflation and interest rates prevail.
Customs data released on Wednesday highlighted the impact on China’s exports to major trading partners. The dollar value of China’s exports to the United States plummeted by 15.1% in the January to May period compared to a year ago, while exports to the European Union declined by 4.9% during the same period. However, China’s exports to the Association of Southeast Asian Nations (ASEAN) registered an 8.1% increase in U.S. dollar terms from January to May, compared to the previous year.
On the other hand, China experienced a stabilization in imports, with May witnessing a 4.5% year-on-year drop to $217.69 billion, which was less severe than the 8% decline anticipated by Reuters. China’s monthly imports have been on a declining trend since late last year, but other analyses of the data indicate signs of recovery in domestic demand.
Julian Evans-Pritchard of Capital Economics estimated that import volumes for May reached an 18-month high after adjusting for a lower comparison base and price changes. He expects imports to continue their recovery in the coming quarters as the effects of reopening the economy continue to materialize. The stabilization in imports provides some optimism amid the concerns surrounding China’s export performance.
The next key economic data point for China will be the release of inflation figures on Friday, which will provide further insights into the country’s economic situation.