Base effects flatter exports, imports stronger than meets the eye
- The pick-up in headline export growth last month reflects base effects and masks a slowdown in levels terms. Meanwhile, imports are doing just as well as exports once price effects are adjusted for.
- Export growth jumped from +7.2% y/y in July to +9.5% last month in US dollar terms (Bloomberg 8.5%, CE 7.0%). (See Chart 1.) We estimate a slightly larger acceleration in volume terms, from 6.0% y/y to 9.7%. But this was entirely due to base effects – exports volumes dropped markedly in August last year. (See Chart 2.) In seasonally adjusted level terms, export volumes fell 1.3% m/m last month. This slight loss of momentum appears to reflect the levelling off in demand for COVID-19 related goods including masks, medical products, and work-from-home equipment. (See Chart 3.)
- Meanwhile, import growth fell from -1.4% y/y to -2.1% in US dollar terms (the Bloomberg consensus was +0.5%, our forecast was +2.0%). Price effects became less of a drag last month but continue to mask the underlying strength of imports. We estimate that import volumes rose 9.5% y/y. This was down from 14.2% y/y in July but mostly due to base effects – in seasonally adjusted level terms, import volumes were broadly stable last month, edging up 0.3% m/m. (See Chart 2 again.)
- With credit growth still accelerating and infrastructure-led stimulus still ramping up, import volumes should remain strong in the coming months. Coupled with a further gradual recovery in commodity prices, growth in import values should therefore return to positive territory again before long. And while exports will continue to benefit from the recovery in global demand, the forthcoming slowdown in shipments of COVID-19 related goods means that further upside is probably limited. The new export orders component of the manufacturing PMIs – which tend to lead exports with a couple of months – point to export growth staying around its current level. (See Chart 4.) The resulting reduction in China’s trade surplus could take some of the wind out of the renminbi’s recent appreciation.
Chart 1: Goods Trade ($, % y/y)
Chart 2: Goods Trade Volumes (seas. adj., 2004 prices)
Chart 3: Exports ($, % y/y)
Chart 4: Exports and PMIs – New Export Orders
Sources: CEIC, Refinitiv, Capital Economics
Julian Evans-Pritchard, Senior China Economist, firstname.lastname@example.org
Martin Rasmussen, China Economist, email@example.com
Sheana Yue, Assistant Economist, firstname.lastname@example.org