China’s economy is cooling more than expected at this point after the country reopened after Covid. The latest official data published are beginning to show a slowdown that is taking them by surprise. The manufacturing PMI was 48.8 in its last reading, in the contraction zone, while it was expected to rise to 51.4, from 49.2 previously. An indication that takeoff is not quite hitting the locomotive of global growth.
The manufacturing industry was the first to give this type of warning, but it is not the only data. The latest export figures also send a message that caution should be the main focus to be taken. Specifically, the export activity of the Asian giant contracted by 7.5% last May, to a total of 283,500. It is the first year-on-year decline after two consecutive months of rise.
Since the reopening, exports have improved, but now this upward trend has reversed sharply, with that drop in growth, despite the base decline in April last year. “This suggests that the initial improvement after the reopening will be largely due to the easing of the supply situation,” Julius Baer experts comment in a recent report.
Now that this effect has faded, the weakening in foreign demand is affecting Chinese export shipments. Exports from the main trading partners contracted in May. “Given that global demand is expected to slow down further, the weakness of Chinese exports is likely to continue in the coming months,” they say from the Swiss firm.
Exports have been a key driver of growth for the Chinese economy in the three years since the outbreak of the pandemic, but with weakening demand for goods from advanced economies, they could no longer be a support factor. The weakening of exports weighs on national industrial production, which is also affected by the moderation in domestic demand for goods.
Import growth has stabilized but remains negative as the domestic recovery is largely concentrated in services. “Consumers continue to be prudent and the appetite for spending on high-value items remains low,” the entity adds.
To this we must add the situation of maritime transport, which can show a picture of how the global economy can slow down as a result of lower Chinese demand. This segment moves 90% of world trade, which makes it a real-time barometer. And both dry bulk and container shipping rates have tumbled from their pandemic highs as supply chains and demand for goods normalize.
Deflation risk in China?
“Prices remain under pressure as China’s reopening has disappointed bulk commodity markets, and import demand from the US and Europe is below pre-pandemic levels, providing some relief. for global inflation concerns, but joins weak commodity prices, manufacturing PMIs and China trade data in warning of global growth risks,” said Ben Laidler, global markets strategist. from eToro.
Major carriers, from container shipping giants Maersk and Hapag Lloyd to bulk carrier leaders ZIM and Star, are hitting the double whammy of lower prices and weaker volumes. But, at the same time, the recovery of the real estate sector remains mediocre. The recovery in property sales has lost steam rapidly, so property investment is likely to continue to contract. “This will keep imports of property-related commodities subdued for longer,” highlights Julius Baer.
China’s factory-gate prices fell at the fastest pace in seven years in May and faster than expected, as faltering demand weighed on a slowing manufacturing sector and cast a shadow over a fragile economic recovery. The producer price index (PPI) for May fell for the eighth consecutive month, down 4.6%, the National Bureau of Statistics (NBS) said on Friday. That was the fastest drop since February 2016 and bigger than forecasts. Some economists even point to the risk of deflation for China.
Lower interest rates?
In the midst of a situation that may be disturbing, the pools begin to publish for a potential drop in interest rates in China. In fact, some information suggests that the Chinese authorities have asked the country’s main banks to lower interest rates on their deposits for the second time in less than a year.
According to the Economic Times, state-owned lenders, including the Bank of China, Industrial & Commercial Bank of China and Bank of Communications, received last week “recommendations to cut rates on a number of products, including bank deposits.” sight at 5 basis points and term deposits at three and five years at least 10 basis points”, according to sources consulted by the media.
Finally, it seems that the banks would be evaluating this request and going up, adjusting the rates immediately. Large lenders currently offer an annualized rate of 0.25% for short-term deposits, and 2.6% and 2.65%, respectively, for three- and five-year term deposits.