Hopes for a China-led recovery to the world economy got a reality check Thursday, as government data showed the country’s exports in May fell a record 26.4 percent compared to last year.
With recent disappointing trade figures from South Korea, Taiwan and Germany, the numbers out of China suggests no light yet in sight at the end of the recessionary tunnel. “We see evidence globally that productivity has slowed again,” says Frederic Neumann, senior economist at HSBC in Hong Kong. “You look month-on-month, it’s all very disappointing readings … it was not the big bounce that people are looking for.” The drop in China was the largest ever year-on-year drop of exports, larger than April’s 22.6 percent drop and worse than analysts predicted. Imports to China dropped 25.2 percent last month, compared to 23 percent in April. China has the second largest export economy in the world, next to Germany. Industrial orders in Germany fell a record 28.7 percent year-on-year in April. The fall was the seventh straight month of decline in China’s once bustling export business, which has fueled the nation’s nearly 10 percent annual growth for the past decade and ascent to the world’s third largest economy.
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But that came to an end after the September fall of Lehman Brothers. The spiraling impact of the financial crisis dialed down the spigot of orders from trading partners in the United States and Europe. The nation’s first quarter gross domestic product grew 6.1 percent, the government announced Thursday — down from 10.6 percent a year ago. Meanwhile, urban fixed asset investment in China was up nearly 33 percent the first five months of this year compared to last year. China’s $586 billion stimulus package includes a focus on increasing infrastructure as a way to spur domestic demand to offset export losses. “These two data surprises out of China — exports worse than expected, fixed asset investment better than expected — neatly summarizes the whole picture,” Neumann said. “It shows that pump priming by the government is working and highlights the importance of continued pump priming. “It highlights that trade risks remain. If there is no support in the private sector (for trade) that raises concerns that pump priming by the government won’t be sustainable,” Neumann said. Meanwhile, in “less worse” economic news, revised data from Japan showed its year-on-year GDP decline from January to March was 14.2 percent rather than the 15.2 percent the government previously reported. Still, the decline was a record drop. The Nikkei 225 Stock Average in Tokyo briefly broke 10,000 this morning for the first time in eight months. The Tokyo bourse hit a 26-year record low in March.