China slowdown impacts trade partners

China's economy continues to under-perform expectations, posing new risks for both the region and the global economy. Its gross domestic product in the second quarter rose only 0.4 per cent year on year and contracted 2.6 per cent compared with the previous three months. The July figures for key indicators such as retail sales and industrial production also came in weaker than expected, prompting the central bank to cut its medium-term lending rate by 10 basis points on Monday to 2.75 per cent, even as interest rates are rising around the world. With the country's zero-Covid policy and the periodic lockdowns that go with it still in force, and the real estate sector in deep distress - property sales fell 29 per cent last month - economists have been cutting their full-year growth forecasts for China's economy.

The International Monetary Fund's (IMF) latest projection is 3.3 per cent, down from 4.4 per cent as recently as April. Even China's government now describes its aim for 5.5 per cent growth this year as guidance rather than a hard target. The picture emerging is that China's brisk recovery from the Covid-19 pandemic last year - when the economy grew by 8.1 per cent - has run out of steam. In the July update to its World Economic Outlook, the IMF cautioned that China's slowdown is likely to have sizeable spillovers on regional trading partners with which its economy is closely integrated. This is already reflected in the July data for Singapore's non-oil domestic exports (Nodx) to China, which slumped 21.3 per cent year on year. Even though overall Nodx still rose by 7 per cent, some economists point out that the revenue figures were elevated by high prices, particularly for semiconductors, which are unlikely to be sustained. The prospects for export growth for the second half of 2022 therefore look subdued, especially as the effects of China's slowdown ripple across the region and the world.