Export growth turned negative last month as lockdowns abroad weighted on global demand. And the ongoing domestic recovery failed to keep import growth from slipping further. A global recovery and further ramp up in stimulus should put a floor under growth in both imports and exports in H2, however.
Weak external demand catches up with exports
- Export growth turned negative last month as lockdowns abroad weighted on global demand. And the ongoing domestic recovery failed to keep import growth from slipping further. A global recovery and further ramp up in stimulus should put a floor under growth in both imports and exports in H2, however.
- After holding up relatively well in March and April, export growth fell from +3.5% y/y to -3.3% in May in US dollar terms (the Bloomberg consensus was -6.5%, our forecast was -2.0%). (See Chart 1.) This suggests that, after fulfilling the backlog of orders that accumulated while China was on lockdown – before lockdowns elsewhere were implemented – the slump in demand abroad has finally caught up with shipments. While growth in exports to most countries slipped, the contraction in shipments headed for the EU, surprisingly, eased from -4.5% y/y to -0.7%.
- Import growth also weakened, from -14.2% y/y in April to -16.7% (Bloomberg -7.9%, CE -5.0%) despite a continued recovery in domestic activity in May. This was the result of a steepening contraction in imports of industrial commodities (such as oil, iron ore, steel, and copper). Growth in other imports were broadly stable. One explanation is that industrial firms are still running down the inventories of raw materials they built up during the lockdown and therefore have imported fewer commodities than the recovery in activity would seem to imply.
- Exports are likely to weaken further in the near term. The contraction in imports for processing and re-exports – which usually does not deviate from export growth for long – deepened last month. (See Chart 2.) The new export order PMI components also suggest that shipments will remain weak in the coming months. (See Chart 3.) But we think that the contraction in global growth will bottom out this quarter – and that a global recovery will put a floor under exports in the second half of this year.
- The import orders component of the official PMI suggests that imports may remain weak for a couple more in months. (See Chart 4.) But further ahead, we think the ongoing ramp-up in investment-led stimulus should drive a strong recovery in imports.
Chart 1: Goods Trade ($, % y/y)
Chart 2: Goods Trade ($, % y/y)
Chart 3: Exports and PMIs – New Export Orders
Chart 4: Imports and PMIs – New Import Orders
Sources: CEIC, Refinitiv, Capital Economics