China’s economy suffers new blow as exports drop 14% in July

August 8, 2023

China’s economy suffers new blow as exports drop 14% in July

China’s exports suffered their biggest drop in more than three years in July as global demand slowed, adding further pressure on Beijing to find ways to reinvigorate the world’s second largest economy.

The value of exports, measured in US dollars, fell 14.5% the previous month from a year ago, the biggest drop since February 2020 when the initial Covid-19 outbreak battered trade and production, according to the latest Chinese customs statistics released on Tuesday.

It also marks the third straight month exports have declined. The steep drop is a reflection of last July’s high number and lower prices, observed by multiple analysts across the nation.

After accounting for seasonality and changes in export prices, they estimated export volumes only edged down 0.9% in July from June.

However, exports are expected to decline further over the coming months, the analysts said, citing larger evidence that global goods demand is falling as pandemic distortions unwind and monetary tightening weighs on consumer spending.

For the first seven months of the year, China’s exports decreased 5% from a year earlier. In particular, shipments to the United States, China’s single biggest trading partner, dropped 13%.

Exports had been a rare bright spot during the pandemic period, providing much-needed support for China’s economy as it grappled with rigid Covid lockdowns and a slumping housing market. They accounted for 17% of China’s GDP last year.

But since last October, those shipments have shrunk as surging inflation and rising interest rates dampen global demand.

Weakening exports deal a fresh blow to the Chinese economy, which lost momentum recently after a strong start to the year. Signs of deflation are becoming more prevalent, sparking concerns that China could enter a prolonged period of stagnation.

Tuesday’s data also showed China’s imports fell 12.4% in July from a year earlier, widely missing the forecast 5% drop in one of the latest Reuters poll of analysts.

It adds to evidence that the country’s domestic demand has softened, with volumes of imports falling to their lowest level since the start of the year.

US jobs market holds steady despite rate rises

Employment in the US held steady last month, bolstering hopes that the economy will avoid a painful downturn.

Employers added just over 187,000 jobs, similar to the number observed in June, while the jobless rate dipped to 3.5%, from 3.6% in the prior month, the Labor Department said. The report was the latest sign of continuing economic resilience in the US, despite a sharp rise in borrowing costs.

Hiring has slowed since last year and was weaker than forecast in July, but has held up better than many had predicted across the country.

Economists have been predicting a slowdown in the world's largest economy since last year, when the Federal Reserve began to raise borrowing costs aggressively, responding to prices that were rising at the fastest pace in over four decades.

Since the Fed started raising interest rates, inflation has dropped sharply, clocking in at 3% in June, and it looks set to continue its fall. The average hourly pay in July was 4.4% higher than over a year ago, the Labor Department stated in one its latest reports.

The 187,000 jobs added in July was fewer than the roughly 200,000 analysts had expected. With the manufacturing, transportation, tech and media firms shedding jobs. Most other sectors expanded, with health care firms driving the gains.

The Labor Department also said hiring was weaker than previously estimated in June and May. But many analysts have said jobs growth has remained strong enough to absorb the ongoing growth in the working age population.

Therefore, this has raised hopes that the economy will slow gradually, but avoid a harsh contraction that would potentially throw millions of people out of work.

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