Much weaker-than-expected trade data from China on Friday suggests the world’s second largest economy is slowing faster than anticipated and could prompt Beijing to take action in days rather than weeks to boost flagging growth, some analysts say.
China’s July exports rose just 1 percent from a year earlier, the weakest reading since January and well below forecasts for a rise of 8.6 percent. Imports meanwhile rose 4.7 percent in July from a year ago, the weakest pace since April and also well short of forecasts for a 7.2 percent rise.
The numbers followed weak numbers from China on Thursday that already had investors betting on further monetary easing soon.
"The data was definitely a surprise and it will raise pressure on Beijing to ease monetary policy sooner rather than later," said Donna Kwok, Great China Economist at HSBC in Hong Kong.
"The easing may well come through in days rather than weeks," she said, adding that Chinese authorities were likely to respond to the weakness in the economy, not just with monetary easing but also fiscal measures such as financial support to households and exporters.
This view was shared by Banny Lam, China Economist at CCB International, who told Reuters news agency that there was a possibility that action by China’s central bank could come as early as the weekend.
China has eased monetary policy by slashing reserve requirement ratios (RRR) for banks three times since November. The country’s central bank has also cut interest rates twice this year to bolster an economy that has slowed for six consecutive quarters.
“There is still a possibility in coming weeks, as early as over the weekend, that the central bank will cut RRR,” Lam was quoted as saying.
The data shock came as a blow to financial markets, which just yesterday brushed aside a flurry of weak economic readings from China. Asian equities from Japan to Australia extended losses following the release of the data. Commodities and China-reliant Aussie dollar also fell in tandem.
Analysts say the data highlighted that measures taken already this year by Beijing to boost economic growth appeared to be having little impact on domestic consumption.
“Perhaps the most worrying in today’s data are the import numbers, which suggest that domestic demand has not responded to the stimulus measures,” PK Basu, Head of Research and Economic at Maybank Kim Eng, told CNBC Asia’s “Cash Flow.”
Alistair Thornton, an economist at HIS Global Insight said the data “complicates the prospects for an imminent recovery.”
“With the export sector losing speed faster than expected, the government’s current investment stimulus plan looks woefully inadequate. This isn’t a 2008 collapse, but it’s not worth testing how close the economy can get,” he said in note. “The government is likely to respond by ramping-up its stimulus efforts, with both monetary and fiscal guns firing.”
In 2008-2009, China announced spending worth $586 billion or 14 percent of its GDP , to bolster its economy in the face of a global financial crisis.
But that spending is blamed for many of China’s economic problems in the years that followed such as local government debt, over investment in housing and higher inflation.
“Fearful of compounding the risks that have built up over the last few years, the government has acted cautiously in loosening. Now is the time to get more aggressive,” said Thornton.
- By CNBC's Dhara Ranasinghe.