China's falling trade figures fuel fear of slowdown
Exports for Australia's largest trading partner fell 3.1 per cent last month from a year earlier, while imports fell 0.7 per cent as China warned of a "grim" outlook. The figures were far from analysts' expectations of a rise in exports and imports.
China's trade surplus widened to $US27.1 billion ($29.5 billion) from $US20.4 billion in May, while iron ore imports slowed to 6.8 per cent of growth year-on-year.
"It was a big disappointment," JP Morgan chief economist Stephen Walters said. "We're not talking about abrupt slowdowns, but clearly the numbers today were pretty soft."
The Australian dollar fell about US0.70¢ to US91.26¢ after the data was released. It rebounded to US92.10¢ late on Wednesday.
The weaker data, which followed a central government crackdown on over invoicing, came as a private survey found Australian consumer sentiment remained steady this month.
It also came ahead of Thursday's much-anticipated jobless figures for June. The unemployment rate in Australia was forecast to rise 0.1 per cent to 5.6 per cent amid a slower-than-expected transition from mining-led growth.
Economists said the decline of exports and imports, the first time since October 2009, excluding distorted figures during Chinese New Year, underscored the weakness of external and domestic demand.
"The current downside pressures to growth seem to be even larger than the mid-year slowdown [last year]," HSBC economists Sun Junwei and Qu Hongbin said.
"This also adds pressure ... on Beijing to fine-tune policy to prevent a hard landing."
Mr Walters said a weakness in China's export data suggested production was slowing in areas such as steel and cement, which could, in turn, lead to a weaker patch for Australian exports to China.
But he warned against being "too downbeat" as improving conditions in some of China's biggest export markets, such as Japan, Europe and the US, meant there would be sufficient demand for Chinese products in those countries down the track.
Commonwealth Bank currency strategist Peter Dragicevich said, despite the weak headline numbers, Chinese imports from Australia were still rising.
"Imports from Australia were up almost 12 per cent year-on-year. Iron ore was a little bit lower than the past few months but still up in terms of volumes compared to a year ago," Mr Dragicevich said.
"So that's really the key factor for Australia, that the volume story in terms of our exports - particularly to China - continues to grow."
On Wednesday, the International Monetary Fund downgraded its growth forecast for China by 0.3 per cent to 7.8 per cent for this year. It lowered its outlook for next year by 0.6 per cent to 7.7 per cent.
Hong Kong-based brokerage CLSA also lowered this year's growth forecast for China to 7 per cent, noting that first-quarter growth was disappointing.
The slowdown in China's economy has weighed on growth forecasts for Australia. An expected peak in mining investment, together with a raft of soft economic data over the past few months, has had the Reserve Bank maintain an easing bias.
Financial markets were pricing in a 61 per cent chance of a cut to the cash rate next month, the highest expectations over the past month, Credit Suisse data showed.
Frequently Asked Questions about this Article…
China reported a surprise fall in trade: exports fell 3.1% year-on-year and imports fell 0.7%, while the trade surplus widened to US$27.1 billion. For investors this signals a further slowdown in the world's second-largest economy, which can affect global growth, commodity demand and Australian companies and assets exposed to China.
Economists warned the weaker export data suggests slowing production in areas like steel and cement, which can reduce demand for Australian commodity exports. Iron ore import growth into China slowed to 6.8% year-on-year, though Commonwealth Bank noted overall imports from Australia were still up almost 12% — so the impact may be uneven across sectors and companies.
The Australian dollar fell by about 0.7 US cents to roughly 91.26 US cents after the data, then rebounded to about 92.10 US cents later that day. Currency moves reflect market reactions to the downgrade in trade momentum and implications for Australia's growth outlook.
Several economists expressed concern: HSBC said downside pressures appear larger than last year and urged Beijing to fine-tune policy, while the IMF and broker CLSA downgraded their China growth forecasts. However, JP Morgan cautioned against being ‘too downbeat’, noting demand from other export markets could cushion the slowdown.
The slowdown has weighed on Australia’s growth outlook and the Reserve Bank has maintained an easing bias. Financial markets were pricing about a 61% chance of a cash rate cut next month, according to Credit Suisse data referenced in the article.
Iron ore imports into China grew more slowly (6.8% year-on-year), which could temper near-term pricing pressure for miners. That said, imports from Australia were still higher in volume terms compared with a year ago, so investors should watch volumes and price trends closely rather than rely on a single month’s reading.
The article highlights increased short-term risks to Australia and more downside pressure on growth, suggesting investors review exposure to China-sensitive assets (commodities, exporters, and currency) and monitor central bank policy signals. It does not prescribe specific trades — investors should consider their own goals and, if needed, seek personalised financial advice.
Investors should watch upcoming Australian jobs figures (the article noted the unemployment rate was forecast to rise to 5.6%) and any further Chinese policy responses or trade updates. Also keep an eye on growth forecasts from bodies such as the IMF and major broker commentary for evolving risks to global and Australian demand.
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