Exports peaking: Chinese goods exports beat expectations in early 2021. Some of the upside surprise was due to supply factors such as the “staying local Lunar New Year”, and some due to demand factors such as new waves of COVIDoutbreaks ex-China. These temporary factors aside, the bigger picture remains that export volume is peaking as reopening in other countries shifts consumer demand from goods to services. While high price inflation should continue to support export value and China’s current account surplus, the tailwind from strong exports to real GDP growth is likely to fade in H2.
Consumption recovery still a long way to go: As of mid-2021, the level of household consumption is still significantly below trend. While we expect consumption and services to continue to recover, the pace is likely to remain gradual. The pace of vaccination accelerated dramatically in May and China is on track to fully vaccinate 40% of its population by the end of June and 70-80% by year-end. But the significant vaccination progress does not change our view of gradual consumption recovery in H2 given the “zero tolerance” policy where local lockdowns dampen economic activity whenever COVID cases are confirmed.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
