China: Merchandise exports increase at a milder rate in July
Merchandise exports soared 19.3% annually in July (June: +32.2% year-on-year). July’s result marked the slowest expansion since December 2020. Meanwhile, merchandise imports shot up 28.1% in annual terms in July (June: +36.7% yoy), marking the worst result since February 2021. Both export and import momentum was weaker than market expectations in July, potentially impacted by factors such as the worsening domestic outbreak of Covid-19, seasonal flooding, supply constraints and higher raw material costs.
As a result, the merchandise trade balance improved from the previous month, recording a USD 56.6 billion surplus in July (June 2021: USD 51.5 billion surplus; July 2020: USD 60.4 billion surplus). Lastly, the trend pointed down, with the 12-month trailing merchandise trade balance recording a USD 608.8 billion surplus in July, compared to the USD 612.6 billion surplus in June.
Year-on-year growth rates for exports and imports will likely continue to ebb in H2 as the base effect turns less favorable and consumers in developed markets shift consumption away from goods towards services as mobility restrictions are lifted. Moreover, the ongoing Covid-19 outbreak at home could continue to crimp momentum in the near term.
Regarding the near-term outlook, analysts at Nomura commented: “Recent shocks to China’s exports appear to be mixed in August: The release of pent-up demand to clear backlogs at some major ports in the Yangtze River Delta following the subsiding of Typhoon ‘In-fa’ may boost exports, while the latest wave of the Covid-19 Delta variant and the reimposition of lockdowns and travel bans may exert some downward pressure. We expect annualized 2y-o-2y export growth to moderate to 12.0% in August from 12.9% in July, implying its year-on-year growth will decline to 15.1% from 19.3% due to a higher base.”