The outlook for China’s exports is expected to improve, bolstering growth in the world’s second-largest economy even as consumer spending slows, according to a Bloomberg survey of economists.
Exports are expected to rise 4.3% this year compared to last, according to the median forecast of 22 economists polled between 17 and 24 June. This is a jump from the 2.8 per cent gain predicted in a May survey. China’s economy could expand by 5 per cent, against the 4.9 per cent forecast in May, according to the median of 68 estimates.
“We expect an improved trade outlook in the coming months, driven by a shift in global demand from services to goods,” said Serena Zhou, senior economist for China at Mizuho Securities Asia Ltd.
Economists update the outlook for China’s GDP growth and exports
China’s exports exceeded expectations in April and May, reflecting strong demand from abroad and the growing competitiveness of Chinese producers. While this supports Beijing’s strategy of relying on exports to stimulate growth and compensate for weak spending by Chinese households, the risks are increasing as its companies begin to face more trade barriers from the US and Europe.
Bloomberg notes that the survey results contrast with a recent report by Goldman Sachs Group Inc., which said that its clients in China are increasingly sceptical about the prospects for export growth in the coming quarters. The bank said at the time that investors are concerned about the sustainability of supply-side expansion, especially when domestic demand is weak, and the risks of trade friction, the bank said in the note dated 23 June.
Now, in the Bloomberg survey, economists have lowered their expectations for retail sales growth – a key indicator of consumer spending – as well as for consumer and factory price inflation this year, reflecting pessimism about demand as there continues to be a sharp contraction in the housing sector.
“Recent macroeconomic data confirms that the property sector remains a drag,” said Arjen van Dijkhuizen, senior economist at ABN Amro Bank NV. “Growth continues to be supported by stronger export dynamics, but external risks are rising as China’s overcapacity contributes to trade disputes, with the US and Europe trying to protect strategic industries.”
China is unlikely to be able to break free from deflationary pressures this year, with economists becoming more pessimistic about the outlook. The consumer price index is forecast to rise by just 0.6 per cent this year, while the producer price index is expected to fall by 1 per cent, both lower than May’s estimates.
This reflects consumers’ reluctance to spend money due to concerns about their job security, income prospects and falling property values.
“Tensions in the labour market continue to weigh on consumer spending,” said Erica Tay, economist at Maybank Investment Banking Group. “Even if advanced manufacturing sectors are gaining global market share, their gains can only go so far to offset the drag on GDP growth from sluggish consumption.”
Economists have postponed their expectations of a cut in the reserve requirement ratio – the amount of money banks must put in reserve – to the third quarter from the second quarter. In recent months, the PBOC has not reduced the pace of easing in order to protect the yuan and because market liquidity was ample.
They also projected a slower growth in the money supply this year compared to May, as the central bank signalled a shift in focus to the efficiency of funds rather than pure expansion.
Economists maintained their projections for a reduction in key interest rates and the benchmark interest rate on loans in the third quarter.
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