Recovery in Chinese Trade Far From Sight as Global Outlook Dims

(Bloomberg) — The contraction in China’s foreign trade is set to continue through the second quarter as global demand remains depressed by measures to curb the ongoing coronavirus pandemic.

Exports and imports slumped 10% or more in March, economists said they expect data due Tuesday to show, continuing the declines of the first two months. The outlook is grim as the World Trade Organization now says 2020 could post the worst collapse in international trade since the Great Depression.

China’s shipments plateaued in 2019 amid the trade war with the U.S. and slowing global growth. The virus outbreak then caused the weakest start for any year since 2012 as exports in the first two months fell 17.2% from a year earlier. Trading partners like the U.S. potentially face many more months of shutdowns before consumption and manufacturing can return to normal.

“If China’s major export markets including the EU and the U.S. suffer in the second quarter due to the pandemic, it’s very likely that China’s exports will be hit hard during the period,” said Betty Wang, senior economist at Australia & New Zealand Banking Group in Hong Kong. “It won’t be surprising to see China’s exports fall year-on-year in double digits in the second quarter,” even if an increase in medicine-related shipments offsets some of the losses, she said.

UBS economist Ning Zhang projects exports will decline by 20% between April and June, citing coming recessions in the U.S., Europe, Japan and some emerging economies. Macquarie Group Ltd.’s Larry Hu says it’s certain that export growth will fall further in the second quarter, and a 13% decline in the whole of 2020 is his base case.

Even the optimistic scenario issued last week by the WTO envisioned a 13% drop in the volume of international goods trade in 2020. The last such drop was in 2009, when trade volumes fell by 12% during the financial crisis. The organization’s pessimistic scenario had the volume of global goods trade dropping by as much as 32% this year.

If that pessimistic case happens, Chinese exports could fall much more than 13%, according to Macquarie’s Hu.

While much of the weakness in February’s data reflected China’s domestic measures to curb the initial outbreak, the irony is that companies are now getting back to work and nearing full capacity just as their overseas markets are closing.

A majority of Chinese exporters resumed more than 70% of production capacity by March 30, according to the Ministry of Commerce, but factories are already receiving order cancellations.

Policymakers across the globe have rushed to introduce relief measures to help their economies through shutdowns and social distancing to stop the spread of the virus, but there’s little sign of a peak in infections yet. In China, the State Council ordered more steps to “stabilize trade,” including building more cross-border e-commerce zones and moving the main trade fair online.

China’s economy contracted 6% in the first quarter from a year ago, based on economists’ estimates, the first time it has shrunk since the data started being released in 1992. It is expected to rebound in the second quarter, but the strength of any rebound will partly depend on what happens with trade.

With the world facing its worst recession since the 1930s this year and half the member nations of the International Monetary Fund already seeking aid, there’s little prospect of the trade situation improving soon.