China’s exports unexpectedly shrink in October due to COVID restrictions, rising inflation and interest rates
China’s exports and imports unexpectedly contracted in October, the first simultaneous decline since May 2020, as rising inflation and rising interest rates dented global demand while new COVID-19 restrictions at home disrupted production and consumption.
Dismal October trade data highlights the challenge for China’s policymakers as exports have been one of the few bright spots for the struggling economy.
Outbound shipments in October fell 0.3% from a year earlier, a sharp turnaround from September’s 5.7% rise, official data showed on Monday, and well below analysts’ expectations for a 4. 3%. It was the worst performance since May 2020.
The data suggest overall demand remains weak, putting more pressure on the country’s manufacturing sector and threatening any significant economic recovery in the face of persistent COVID-19 restrictions, lingering asset weakness and risks of a global recession.
Chinese exporters have not even been able to take advantage of the further weakening of the yuan and the key year-end shopping season, underscoring mounting tensions for consumers and companies around the world.
“Weak export growth likely reflects both weak external demand and supply disruptions due to the COVID outbreak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing the COVID disruptions at Apple’s main supplier Foxconn’s Zhengzhou factory as one example.
(AAPL) said it expects lower-than-expected shipments of the top-end iPhone 14 models after a key production cut at a factory in virus-hit China.
“Going forward, we think exports will further decline in the coming quarters. The shift in global consumption patterns that boosted demand for consumer goods during the pandemic is likely to continue to ease,” said Zichun Huang, an economist at Capital Economics.
“We believe that aggressive financial tightening and shrinking real incomes due to high inflation will push the global economy into recession next year.”
Nearly three years into the pandemic, China has stuck to a strict policy to contain COVID-19 that has taken a heavy economic toll and fueled widespread frustration and fatigue.
Weak factory and trade data in October suggested the world’s second-largest economy was struggling to dig itself out of the mud in the final quarter of 2022, after reporting a faster-than-expected recovery in the third quarter.
Chinese policymakers vowed last week to prioritize economic growth and press ahead with reforms, allaying fears that ideology may take precedence as President Xi Jinping begins a new term at the helm and disruptive measures continue without a clear exit strategy.
Lumpy domestic demand, weighed down by new COVID restrictions and lockdowns in October, as well as a cooled housing market, also hurt imports.
Incoming shipments fell 0.7% from a 0.3% rise in September, below expectations for a 0.1% increase – the weakest showing since August 2020.
China’s soybean imports fell and coal imports fell, as strict pandemic measures and a slump in assets disrupted domestic production.
The overall trade data resulted in a slightly wider trade surplus of $85.15 billion, compared to September’s $84.74 billion, missing forecasts of $95.95 billion.
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