Headline trade growth surged in December. But this is more a reflection of base and price effects than of current strength. And while the outlook for exports is improving, domestic demand will remain subdued.
Trade data less upbeat than meets the eye
- Headline trade growth surged in December. But this is more a reflection of base and price effects than of current strength. And while the outlook for exports is improving, domestic demand will remain subdued.
- Export growth jumped from -1.3% y/y in November to +7.6% last month in US dollar terms (the Bloomberg median was +2.9%, our forecast was +3.5%). (See Chart 1.) This partly reflects a more flattering base for comparison. But exports rose 2.3% m/m in seasonally adjusted terms, consistent with a pick-up in external demand. (See Chart 2.) Exports to the US improved but they continue to underperform shipments to the rest of the world, suggesting that US tariffs remain a drag. (See Chart 3.)
- Growth in imports also jumped from 0.5% y/y to 16.3% y/y (Bloomberg median +9.6%, CE +20.0%). But this was almost entirely due to base effects – imports only edged up 1.2% m/m in seasonally adjusted terms. Furthermore, we estimate that this modest improvement was the result of higher import prices rather than stronger import volumes. As such, it would be premature to conclude that there has been a marked pick-up in domestic demand.
- At the press conference, officials pointed out that imports of pork and soybeans from the US had rebounded “significantly”. But in aggregate, growth in imports from the US witnessed less of a pick-up than shipments from other countries last month. (See Chart 4.)
- Looking ahead, a gradual recovery in GDP growth among China’s trading partners should help to put a floor beneath exports this year. The “Phase One” US-China trade deal due to be signed this week will also help at the margin. Import growth may not rise much further, however, given the continued headwinds to domestic demand. Instead, any step up in imports from the US as a result of the trade deal will probably come at the expense of imports from elsewhere.
Chart 1: Goods Trade ($, % y/y)
Chart 2: Goods Trade ($bn, seas. adj.)
Chart 3: Exports by Destination ($, % y/y)
Chart 4: Imports by Origin (% y/y)
Sources: CEIC, Capital Economics