China’s exports and imports decreased in May, albeit at a slower rate than anticipated, as manufacturers struggled to find demand overseas and domestic consumption remained lethargic.
Exports from the world’s second-largest economy fell 7.5% year-over-year in May, the greatest drop since January and a reversal from April’s 8.5% growth. The decline in imports slowed to 4.5%, compared to 7.9% in the previous month.
The poor export performance is a reflection of the feeble demand for Chinese goods, as is the weak import performance, as China imports components and materials to assemble export-ready products.
Economists projected 0.4% export and 8.0% import declines.
In May, shipments to China decreased by 20.8%, marking a full year of monthly declines, while exports of Korean semiconductors decreased by 36.2%, indicating lackluster demand for components used in final assembly.
After the trade data, Chinese equities pared gains and the Australian dollar, a commodity currency that is highly sensitive to fluctuations in Chinese demand, declined.
China must rely on domestic demand as the global economy declines, according to Zhiwei Zhang, chief economist of Pinpoint Asset Management. There is increased pressure on the government to increase domestic consumption in the second half of the year, as global demand is likely to weaken further.
The official purchasing managers’ index (PMI) revealed last week that China’s factory activity contracted more quickly than anticipated in May due to weaker demand.
The PMI subindexes revealed that factory output shifted from expansion to contraction, while new orders, including new exports, declined for a second consecutive month.
Having outperformed expectations in the first quarter, analysts are now lowering their forecasts for the remainder of the year as factory production continues to stall in response to persistently sluggish global demand.
The government has set a modest GDP growth target of approximately 5% for this year, after missing the target by a wide margin in 2022.