Exports dropped the most since 2008 at the start of this year. Imports held up better but at the expense of a jump in inventories. Inbound shipments will soon play catch-up with the slump in domestic demand.
Imports yet to reflect the slump in demand
- Exports dropped the most since 2008 at the start of this year. Imports held up better but at the expense of a jump in inventories. Inbound shipments will soon play catch-up with the slump in domestic demand.
- Exports during January and February fell 17.2% in US dollar terms from the same period in 2019 (the Bloomberg median was -19.3%, our forecast was -18.0). (See Chart 1.) But favourable base effects from the slowdown in trade last year means that the headline year-on-year growth rate understates the weakness in shipments. In seasonally adjusted terms, the decline in exports is on a par with the global financial crisis. (See Chart 2.)
- While imports also contracted, the 4% y/y decline was much smaller than expected (Bloomberg median -14.7%, CE -12%). This was the result of a pickup in imports of major industrial goods – which accounts for a third of total imports – offsetting some of the weakness elsewhere. (See Chart 3.) However, this was not due to stronger demand – all high frequency indicators show that industrial activity has been extremely subdued recently. A more likely explanation is that purchase contracts are signed months in advance and therefore do not respond to changes in demand straight away. The sharp rise in the inventory levels of many key commodities since the start of the year is consistent with this and suggests that imports are running well ahead of demand and production. (See Chart 4.) As a result, imports are likely to plummet in the coming months as firms run down inventories and demand remains weak.
- Export growth is set to fall deeper into negative territory this month as it will reflect the full extend of the recent disruptions, unlike the latest figures which included January when production was mostly normal. Exports ought to recover in Q2 as more firms reopen and labour shortages eased. But any recovery will be significantly dampened by the spread of the coronavirus outside of China, which looks set to weigh heavily on foreign demand.
Chart 1: Goods Trade ($, % y/y)
Chart 2: Goods Trade (2m ave. $bn, seas. adj.)
Chart 3: Imports by good ($, % y/y)
Chart 4: Change in Inventories since 1st Jan. (%)
Sources: CEIC, WIND, Capital Economics