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Coronavirus Pain Set to Show Up Next in China’s Trade Data

Friday 6th March 2020

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China’s trade likely plunged in January and February on the combined effects of the extended Lunar New Year holiday and the worsening coronavirus outbreak, highlighting the impact on supply chains that continues to ripple through the global economy.

Exports and imports are forecast to have slumped in the period, with shipments out of China dropping by about a fifth, according to a Bloomberg survey. The release on Saturday will be the first time the government has combined the data for the first two months of the year, an attempt to smooth out the usual volatility from the Lunar New Year break.

However this year is anything but usual, as factories remain far below capacity and consumers stay at home due to government restrictions and fear of the disease. The shutdowns pushed the official purchasing managers’ index in February to the lowest level on record, and more pain could be in store if demand in developed economies craters due to outbreaks there.

“This is the second round effect we are worried about,” said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd in Hong Kong. “Now, epidemiologists instead of economists are more capable of predicting China’s economic outlook.”

The disruption may also jeopardize China’s ability to meet its commitments to the U.S under the terms of the trade deal signed in January. China agreed to increase its imports of U.S. goods and services by $76.7 billion over the level in 2017 in the first year of the deal, and then by $123.3 billion in the second year, increasing imports by a total $200 billion.

Economists continue to downgrade their forecasts for China’s economy, reflecting in part slow progress in getting its industrial machine back to pre-virus levels. Nomura Holdings Inc. is the latest to change, cutting its growth forecast for the first quarter to 0%.

The twin supply-demand shocks around the world are prompting renewed calls for finance ministries and central banks to pump in stimulus. With China apparently getting on top of its own outbreak, a further escalation of government support to the economy could fire local demand and ease the pain being felt elsewhere.

“China is the biggest market for many companies around the world,” said Gai Xinzhe, a senior analyst at Sino-Ocean Capital in Beijing. “If China rolls out robust measures to boost infrastructure, property, 5G network construction, auto consumption and so forth, it will give a push to the global economy, and in return, alleviate the pressure on external demand.”

(Bloomberg)



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