China: Despite July export growth, the road ahead may be still bumpy – BBVA

Data released on Friday showed better-than-expected export growth in China. Economists at BBVA explain export received a boost from coronavirus-related product shipments, together with a volume expansion. However, they consider the external sector will remain lackluster in the rest of the year amid global contagion of coronavirus.

Key Quotes: 

“The July export growth significantly surprised the market to the upside, surging to 7.2% y/y (consensus: -0.2% y/y) from 0.5% y/y in the previous month, reaching the seven months' high. On the other hand, import growth contracted to -1.4% y/y (consensus 1% y/y) from last month's reading of 2.7% y/y, mostly driven by the price effect.”

“It is worth noticing that the strong medical care products that have supported exports in the latest months could be transitory. As countries have been relocating the pandemic-related supply chain back to home, the global demand of medical care products might gradually decline in the future.”

“Looking ahead, despite of the surging July export growth data, the road ahead may be still bumpy, due to the widely spread COVID-19 around the world which unprecedentedly ruined the global value chain and economic activities. Altogether, we expect China’s export growth will decrease by -8% y/y in this year (vs. -4% drop in JanJuly), while imports dip by -9% y/y (vs. -6% y/y drop for Jan-July). Thus, the external demand maintains a drag on growth throughout the rest of year.”