China's exports likely slowed in May amid trade uncertainties: Reuters poll

China's export growth likely slowed to 5.0% year-on-year in May, down from 8.1% in April, while imports are forecast to have dropped 0.9%, widening from April's 0.2% dip, according to a Reuters poll of economists. Despite a temporary lowering of U.S. tariffs, unresolved trade war tensions and uncertainties in Sino-U.S. relations continue to weigh on shipments, with economists divided on the overall impact of the tariff truce and concerns remaining about the potential for a sharper slowdown in export growth in the second half of the year. Recent factory activity data and central bank rate cuts reflect ongoing efforts to mitigate the trade war's impact on the Chinese economy, with the May trade surplus expected to increase to $101.3 billion.

Analysis

China's export growth is anticipated to have decelerated in May, with a median forecast of 5.0% year-on-year, a notable slowdown from April's 8.1% rise. This moderation occurs despite a temporary reduction in U.S. tariffs on Chinese goods, underscoring the persistent drag from the unresolved Sino-U.S. trade conflict and associated uncertainties. Concurrently, imports are projected to contract by 0.9% year-on-year, worsening from a 0.2% dip in April, reflecting lackluster domestic demand. The preceding months of March and April saw an acceleration in exports, attributed to front-loading by manufacturers ahead of potential tariff escalations. Economists exhibit a range of expectations for May's export performance, from a 9.3% growth to a 2.5% decline, highlighting the unpredictable environment. Nomura analysts suggest the recent tariff truce might lessen the urgency for substantial Chinese stimulus and structural reforms, estimating that U.S. tariffs on Chinese imports could remain substantial at approximately 42%, and they project a significant slowdown in China's export growth in the second half of the year. While China's first-quarter GDP growth surpassed expectations, ongoing trade tensions have tempered optimism. Recent manufacturing data, with the official PMI contracting for a second consecutive month in May and a private-sector PMI showing shrinkage for the first time in eight months, indicates that tariff impacts are materializing. In response, the central bank has reduced benchmark lending rates and lowered deposit rate ceilings to cushion the economic impact. Despite these headwinds, China's trade surplus is forecast to increase to $101.3 billion in May from $96.18 billion in April.

Key Decisions for Investors

• Investors should closely monitor developments in Sino-U.S. trade negotiations and tariff policies, as these remain critical determinants of China's export outlook and market sentiment.
• Consider potential headwinds for Chinese equities and global assets exposed to Chinese trade, particularly if export growth continues to slow into the second half of the year as some analysts predict and recent PMI data suggests.
• Evaluate the efficacy of Chinese monetary policy easing and any forthcoming fiscal stimulus in bolstering domestic demand and mitigating the adverse effects of trade friction.