China: Export bounce fails to rescue a bad quarter - ING

Tim Condon, Chief Economist at ING, suggests that the support for Chinese growth will have to come from domestic spending and the hopeful signs in the Jan-Feb activity data argue for staying the course policywise.

Key Quotes

“The 28% sequential post-Lunar New Year export bounce compares with a 2011-14 average of 42%, underscoring that the 11.2% YoY growth, the first positive print since June 2015, was more due to a low year-ago base than current strong demand for China’s exports. The -9.7% year-to-date growth confirms a third step down in growth occurred in early 2016. The underperformance in terms of growth rates could undermine an argument the authorities have used to dismiss claims that the CNY needed to devalue.

The news on the import side was better; the seasonal post-Lunar New Year bounce was 40% vs. a 2011-14 average of 25%. Year-to-date growth was -13.2%, up from -14.2% in 2015. We ascribe the acceleration to base effects – a narrowing in the year-over-year decline in global oil prices – and the heavy weight of commodities in the import bundle.

The IMF/World Bank global growth and world trade volume forecast downgrades set the tone: 2016 is shaping up to be the worst year for China’s exports since 2009 and could be an even worse year for imports. Policy has turned more accommodative in 2016 and the January-February activity data contained hopeful signs that it’s bearing fruit. We think those signs are a sufficient reason for the authorities to stay the course.”