BEIJING: China is expected to report a sharper drop in exports for May as higher US tariffs bite, while imports are likely to contract in a further sign of weakening domestic demand that could spark more stimulus measures.
If the trade data are in line with the gloomy forecasts, it could add to fears of a global economic recession as the US-China trade war intensifies.
Factory activity contracted in most Asian countries last month, weighed down by slowing demand, while that in the United States slowed to its weakest pace in over two years.
China’s exports in May are expected to have declined 3.8 per cent from a year earlier, according to the median estimate of 13 economists in poll, worsening from a 2.7 per cent fall in March.
Trade tensions between Washington and Beijing escalated sharply last month after the Trump administration accused China of having “reneged” on promises to make structural changes to its economic practices.
US President Donald Trump on May 10 slapped higher tariffs of up to 25 per cent on $200 billion (£157.9 billion) of Chinese goods and then took steps to levy duties on all remaining $300 billion Chinese imports. Beijing retaliated with tariff hikes on US goods.
“The time window for China and the US to address trade tensions is narrowing,” said analysts at Morgan Stanley in a note on Wednesday.
If the US imposes 25 per cent tariffs on the remaining $300 billion of imports from China, China’s GDP growth could decelerate to 6.0 per cent in 2019 despite more aggressive stimulus, with quarterly growth dropping below 6.0 per cent by the second half of this year, they said.
Analysts at Nomura, however, believe China’s May exports could rise 1.0 per cent, due partly to a jump in US-bound shipments as exporters race to avoid potential tariffs on goods on the looming $300 billion list. Similar “front loading” kept Chinese exports strong for much of last year.
Further inflaming tensions between the economic giants, the US has put Chinese telecom equipment Huawei Technologies Co Ltd on a trade blacklist, prompting retaliation from Beijing to target foreign companies that it says have harmed Chinese firms’ interests.
May import data is expected to show domestic demand is still sputtering despite a raft of growth boosting measures rolled out since last year.
Analysts forecast imports fell 3.8 per cent from a year earlier, reversing an expansion of 4 per cent in April, which some analysts had suspected was related to a cut in the value-added tax (VAT).
Import orders contracted at a quicker pace in May, an official survey of manufacturing activity showed last week.
If Washington imposes tariffs on the remaining $300 billion of Chinese goods in coming months, analysts at Bank of America Merrill Lynch expect Beijing will roll out a comprehensive and sizable stimulus package before the end of 2019, aimed especially at boosting property and infrastructure investment to support economic and social stability.
“On the monetary front... Multiple RRR cuts and 3 interest rate cuts would be likely before the end of 2019, and another 1 rate cut could be seen in 2020,” BAML said in a note on Wednesday.
China has already cut banks’ reserve requirements (RRR) six times since early 2018 and guided interest rates lower, while keeping ample liquidity in the banking system. But mounting economic pressures have led some analysts to call for bolder stimulus measures.
Unlike past downturns, Beijing has so far refrained from massive stimulus programmes to jumpstart the slowing economy, possibly due to concerns about rising debt.
It has fast-tracked infrastructure projects, cut taxes for companies and raised export tax rebates, along with rolling out targeted cuts in banks’ reserve requirements. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
