China’s trade falters as demand wanes at home and abroad

China’s exports and imports lost momentum in August with growth significantly missing forecasts as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted output, reviving downside risks for the shaky economy.

Exports rose 7.1% in August from a year earlier, slowing from an 18.0% gain in July, official customs data showed on Wednesday, well below analysts’ expectations for a 12.8% increase, reports Reuters.

Outbound shipments have outperformed other economic drivers this year but now face growing challenges as rising interest rates globally, inflation and geopolitical tensions pummel external demand.

“It seems the export softness arrived in earlier than expected, as recent shipping data suggests that demand from the U.S. and EU has already slowed as shipping prices have been falling significantly,” said Zhou Hao, chief economist at Guotai Junan International.

He expects pricing effects will continue to disrupt trade and said import growth in real terms had already turned negative since the late first quarter, suggesting more headwinds for demand.

The weakening yuan, which recently hit two-year lows, has not boosted China’s exports growth, highlighting the subdued external demand.

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