Nomura says weak trade figures in December were linked to the ending of pre-tariff front-loading and expects policy reforms and a possible trade deal with the US may revive prospects in the second half.
The economic slowdown in China may bode ill for freight, but according to one analyst, exports will “stabilise” in the second half of 2019.
Last week, China reported its weakest annual growth since 1990 at 6.6% for 2018, and the IMF now expects China’s growth rate to slip to just 6.2% this year and in 2020.
This followed dismal trade figures in December, when China’s export and import growth in US dollar terms tumbled 4.4% and 7.6%, year on year, respectively. That compared to year-on-year growth of 3.9% for exports and 2.9% for imports in November, and export growth of 14.3% in October.
According to investment bank Nomura, the latest data should be put in more perspective − despite export growth in December being far weaker than expected, export growth over the whole of 2018 soared 9.9%, up from 7.9% in 2017 and the highest annual growth rate recorded in seven years.
The analyst argued that the December downturn reflected an end to export front-loading on the transpacific container trades. This was driven by US importers seeking to avoid high-end tariffs on Chinese products that were originally due to be implemented on January 1 but were subsequently put on hold as the two parties opened trade talks.
“Export growth to the US fell to -3.5% year-on-year in December from 9.8% in November, significantly below average growth of 12.9% over the first 11 months of 2018,” said Nomura. “The sharp contraction in China’s exports to the US suggests that front-loading is almost over, evidenced by the convergence of freight rates for US- and EU-bound cargo, and we may see more payback effect coming through.”
With exports to the US falling by more than imports from the US, the trade surplus with the US shrank to $29.9bn in December from $35.5bn in November. This resulted in a $324bn trade surplus with the US for 2018 – the highest annual trade surplus on record.
However, Nomura also noted that global demand could now be slowing, which could dim China’s export growth for a large chunk of 2019. Exports to Japan and the EU fell by 1.0% and 0.3%, year over year, respectively, from 4.8% and 6.0% in November. And export growth to ASEAN and South Africa slowed to 4.3% y-o-y and -11.2%, respectively, from 5.1% and -2.7% a month earlier.
December’s export growth print could, however, lay the groundwork for policy reform that boost exports during 2019. Nomura said this could mean the recent strength of the RMB might be short-lived. Beijing might also now be more eager to strike a trade deal with the US, and policymakers could seek to take more aggressive measures to stabilise GDP growth.
“We continue to expect growth to worsen in H1 2019 before stabilising in H2,” said the analyst.
With Liu He, China’s top trade negotiator, expected to visit the US this week, Nomura believes a deal could be struck.