Posted on February 9, 2015 by the XM Investment Research Desk at 2:32 pm GMT
The news that Chinese imports shrunk sharply during January was a negative development that showed that domestic demand in the world’s second largest economy was soft.
Both export and import growth were weak, as exports contracted by 3.3% year-on-year instead of climbing 6.3% as expected. Exports to Europe were negative, although exports to the United States had a positive sign. However, the drop in imports was much more significant, as they were down 19.9% year-on-year versus a drop of only 3% that was expected by economists.
This was a major surprise but one cannot make too much out of one month’s data. For example, China was said to have been stockpiling commodities during some previous months and the large drop-off in commodity imports is not in itself a reason for deep worries. Imports at 140 billion dollars during January were the weakest since February of 2014.
On a more positive note, the trade balance surplus jumped to 60 billion US dollars from a surplus of nearly 50 billion during December. However, when the trade balance surplus grows because of falling imports rather than export growth, it can be a less-than-positive sign – unless it concerns a country that is overconsuming – and that description clearly does not fit China.
The consequences from the data are that they do show some slowdown in the Chinese economy and it is possible that certain additional stimulus measures are taken in coming months. It will be some time before more reliable import-export data will come out, as due to the long Chinese New Year holidays, there are problems with the first three months’ data when year-on-year comparisons are difficult. Last year Chinese New Year was on January 31 while this year (year of the goat) it is on February 19. Chinese consumer and producer inflation will come out on Tuesday for more clues on what is happening in the country price-wise.