Chinese trade collapsed in July as export and import growth
slowed from June showing that the global economy continued to slow.
Chinese growth, especially its large export sector, has slowed as
Europe dips further into recession as the debt crisis chokes growth
on the continent.
Chinese export growth slowed to a mere 1 percent in July after
rising 11.9 percent in June. The data missed economist estimates of
a 5 percent growth rate, showing that stimulus policies enacted by
authorities in China over the past few months have failed to
stimulate growth. The slowdown in exports opens the door to further
easing policies as well.
Import growth also fell in July, as imports only grew at a 4.7
percent rate from June. The rate of import growth was well below
the 6.3 percent rate of growth of imports in June and also missed
economist estimates. The continued slowdown in China's economy does
not bode well for the U.S., as our two biggest trading partners,
China and the Eurozone, now are both showing signs of slowing.
The data follows
weak industrial production data
that was reported Thursday. All of the new data released over the
past two days points to a protracted slowdown of China's growth
rate and raises fears that GDP growth could slip below 7 percent by
the end of 2012.
Should Europe continue to slow, it will weigh on China through
China's exports. The Eurozone is China's largest trading partner,
and so a slowdown can spillover through a drop in trade, as shown
in today's data. Also, the global slowdown will surely affect the
U.S., as second quarter GDP growth fell below 2 percent and leading
economic indicators point to a longer period of slow growth and the
increasing likelihood of another U.S. recession.
Rate cuts in China seem all but certain now. The People's Bank
of China has cut consumer borrowing and lending rates to try to
spur consumption growth, but the slowdown has continued despite
these efforts. Analysts now expect further rate cuts and potential
cuts of the Reserve Requirement Ratio (RRR) instead of consumer
rates. The RRR is the percentage of reserves that banks need to
keep at the PBOC. Cutting this rate, which was the choice of rate
policy for China in previous rate cycles, would allow banks to have
excess reserves which they could hopefully lend out, increasing
credit growth and giving the economy a jump start.
Financial markets fell on the data, as the very weak export
numbers shocked investors. Global stocks fell from Asia through
Europe, as the Japanese Nikkei Index fell nearly 1 percent in Tokyo
trading and benchmark European indices followed suit. The EUR/USD
dropped as well and broad risk sentiment seemed to fade on the
data. U.S. equity futures continue to trade lower in pre-markets,
with S&P 500 futures falling 6.3 points to 1,394.3.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
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