China’s exports surge unexpectedly, but outlook still grim

China’s exports unexpectedly rose in April for the first time this year as factories raced to make up for lost sales due to the coronavirus shock, but a double-digit fall in imports signals more trouble ahead as the global economy sinks into recession.

April’s better-than-expected exports followed an improvement in March, but the trade outlook is bleak as major economies remain in the grip of the pandemic amid rising infections and deaths. A collapse in global demand and mounting job losses will likely quash demand for Chinese goods for months to come.

Overseas shipments in April rose 3.5 percent from a year earlier, marking the first positive growth since December last year, customs data showed on Thursday. That compared with a 15.7 percent drop forecast in a Reuters poll and a 6.6 percent plunge in March.

Some economists attributed the rise in exports to factory closures elsewhere just as China’s manufacturers reopened after extended shutdowns due to the virus outbreak.

“Not only was the global demand taking a hit from the coronavirus, but the shock to the production side was actually more pronounced last month,” said Nie Wen, economist at Shanghai-based Hwabao Trust, adding that better-than-expected export performance could extend into May as some production constraints remain in place for other economies.

“But I’m particularly worried about the slump in foreign demand – the impact would only be fully felt later on as world factories reopen.”

Economists expect pressures to persist as the coronavirus crisis ravages the global economy.

“April shipments may have been boosted by exporters making up for shortfalls in the first quarter due to supply constraints then,” Louis Kuijs of Oxford Economics said in a note.

“(But) in any case, as heralded by the weakness of new export orders in the PMIs, exports should weaken significantly in the near term as China’s key trading partners fall into deep recession, although our baseline forecast sees global demand recovering in the second half.”

Both official and private factory surveys for April showed sub-indexes for export orders scaled back sharply, suggesting stronger external headwinds even as some countries have eased lockdowns.

Many Chinese factories are faced with rising inventory and falling profits, and some have let workers go as part of cost-cutting efforts.

Weak domestic demand

Imports sank 14.2 percent from a year earlier, the biggest contraction since January 2016 and below market expectations of an 11.2 percent drop. They had fallen 0.9 percent the previous month.

The soft imports reading was due to weak domestic demand and declines in commodity prices. The shutdowns outside China also dealt a heavy supply shock to the country’s importers.

China’s trade surplus for the period stood at $45.34bn, compared with an expected $6.35bn surplus and a surplus of $19.93bn in March.

With the coronavirus under control domestically, China’s economy has begun to open up again as authorities loosen draconian restrictions, including stay-at-home orders.

Economists, however, have mostly slashed their trade forecasts for the near term and are wary of fresh hostilities between Beijing and Washington.

“We expect export growth to slump further to -30.0 percent in Q2 from -13.3 percent y-o-y in Q1 and real GDP growth to remain negative at -0.5 percent y-o-y in Q2,” said Nomura analysts in a research note prior to the data.

US President Donald Trump said he was watching closely whether China would meet its commitments to increase US goods purchases under the phase one trade deal.

China could roll out more support measures to stimulate domestic demand in the event that tensions with the United States flare up again, Nie from Hwabao Trust said.