China unexpectedly posted a trade deficit for February. The country’s trade balance fell $31.5 billion, the largest trade deficit in a decade. Import growth was up 39.6% through February which is well above analysts expectation of 27%.
Zhang Zhiwel, chief China economist at Nomura located in Hong Kong, said that this trade report should not be looked into with any conclusions. The analyst cites that factories were shut down for an entire week during January because it was the Chinese Lunar New Year. The economist went on to say that he believes March and April will be much better for exports and should return to around normal.
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HSBC, investment bank located in Britain, reportedly told clients that the Chinese trade deficit could reach up to $28 billion. At the time, the overall market’s opinion was a trade deficit of $4.9 billion.
Unfortunately, I would like to agree and believe in what Zhang Zhiwel says about Chinese exports but the fact of the matter is that exports fell 0.5% in January as well. The importing numbers for January were down 15.3%. This could show us that the Chinese consumer is weakening and not demanding products.
Now all eyes are turned to China’s quarterly growth report. Forecasts are set to show that China’s economy slowed to about 8% in first quarter from 8.9% in the previous quarter. Unfortunately, this would put China on its fifth consecutive quarter of slowdown and it could be the slowest growth for China in over a decade.
Chinese slowdown is expected to have a soft landing after a few key indicators on Friday soothed investors’ fears. Investors are hoping that the Chinese government will ease its monetary policy, making loans cheaper and banks will have fewer restrictions.
Our greatest fears are starting to show themselves. Analysts have long feared that China would be slowing down and its growth would not be at previous levels. If you look at the trade report and consumer report, you would see that China’s economy has slowed and the next growth report will confirm its fifth continuation of the slowdown. Luckily, the Chinese have not used very many easing tools, leaving a lot of options on the table. This alone is giving investors confidence that the slowdown will have a soft landing rather than a recession and economic hardships. However, if trade doesn’t turn around along with consumers, China’s problem could be a lot bigger than we previously imagined.