Chinese trade suggests slowing economy

Via Capital Economics:

• Chinese exports held up well on the eve of US tariffs. But weaker-than-expected import figures point to a renewed slowdown in domestic demand heading into the second half of the year.

• Export growth edged down last month, from 12.6% y/y to 11.3% in US dollar terms, but held up better than anticipated (the Bloomberg median was 9.5%, our forecast was 10.0%). (See Chart 1.) Adjusting for seasonality and price effects, we estimate that export volumes rose 1.1% m/m in June. (See Chart 2.)

• The upshot is that outbound shipments appear to have remained healthy ahead of US tariffs. In fact, export growth to the US accelerated last month, from 11.6% y/y to 12.6%, though we suspect that this pick-up was partly driven by firms attempting to front-run the tariffs and so will probably prove short-lived.

• Despite the recent focus on the external risks facing China, it was import growth that fell short of expectations last month, dropping from 26.0% y/y to 14.1% (Bloomberg 21.3%, CE 20.0%). (See Chart 1 again.) The data look even more downbeat once we strip out the boost from rising import prices – we estimate that import volumes fell 4.2% in seasonally adjusted m/m terms. (See Chart 2 again.)

• This suggests that domestic demand may have started to weaken again last month after receiving a temporary boost earlier in Q2 from the easing of winter pollution controls. It also hints at a renewed decline in the China Activity Proxy – our in-house measure of GDP growth. (See Chart 3.)

• Looking ahead, we think export growth will cool in the coming months as US tariffs start to bite alongside a broader softening in global demand. That said, the slowdown may not be abrupt as some fear given that these drags should be partly offset in the near-term by a weaker renminbi. (See Chart 4.) Meanwhile, import growth is set to slow further as domestic headwinds from property controls and weaker investment spending continue to intensify.

Steel exports were up at 6.94mt:

While iron ore imports were down sharply to 83.24mt:

And looking very toppy.

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