Sagging demand a drag on Chinese recovery

BEIJING • The contraction in China's foreign trade is set to continue through the second quarter, as global demand remains depressed by measures to curb the ongoing coronavirus outbreak.

Both exports and imports are forecast to have slumped 10 per cent or more last month, with data due today expected to show a continuation of the declines seen in the first two months of the year. The outlook is grim too, with the World Trade Organisation (WTO) now saying that this year could see the worst collapse in international trade since the Great Depression.

China's shipments plateaued last year due to the trade war with the United States and slowing global growth, and the virus outbreak then caused the weakest start for any year since 2012, with exports falling 17.2 per cent from a year earlier in the first two months. Trading partners like the US potentially face many more months of shutdowns before consumption and manufacturing can return to normal.

"If China's major export markets including the European Union and the US suffer in the second quarter due to the pandemic, it's very likely that China's exports will be hit hard during the period," said Ms Betty Wang, senior economist at Australia and New Zealand Banking Group in Hong Kong.

"It won't be surprising to see China's exports fall year on year in double digits in the second quarter", even if an increase in medicine-related shipments offsets the loss a little, she said.

Her estimates were echoed by others. UBS economist Ning Zhang expects exports to decline by 20 per cent between this month and June, citing the coming recessions in the US, Europe, Japan and some emerging economies. Macquarie Group's Mr Larry Hu thinks it is certain that export growth could fall further in the second quarter and a 13 per cent decline for the whole of this year is his base case.

The WTO's optimistic scenario last week saw a 13 per cent drop in the volume of international goods trade this year. The last such drop was in 2009, when trade volumes fell by 12 per cent during the global financial crisis. Its pessimistic scenario sees the volume of global goods trade dropping by as much as 32 per cent this year. If that happens, Chinese exports could fall much more than 13 per cent, according to Macquarie's Mr Hu.

While much of the weakness in February's data was due to China's domestic measures to curb the initial outbreak, the irony is that firms are now getting back to work and nearing full capacity just as their overseas markets are closing.

A majority of Chinese exporters had resumed over 70 per cent of production capacity by March 30, according to China's commerce ministry, but factories are already seeing order cancellations.

Policymakers across the globe have rushed to introduce stimulus to help their economies over the shutdowns and social distancing measures necessary to stop the spread of the virus, but there is little sign of a peak in infections yet.

The State Council, China's Cabinet, has ordered more measures to "stabilise trade", including building more cross-border e-commerce zones and moving the main trade fair online.

However, with the world facing its worst recession since the 1930s this year and half the member nations of the International Monetary Fund already seeking aid, there is little prospect of the trade situation improving soon.

BLOOMBERG