China’s glorified comeback from Covid-19 lockdowns turned out to be a lot more dismal than anticipated.

China faced a sharper-than-anticipated decline in both imports and exports last month, shedding light on challenges to the recovery trajectory of the world’s second-largest economy.

According to customs data cited by Reuters, imports tumbled 12.4% year-on-year in July, a significant drop compared to June’s 6.8% decline and considerably more than the 5.6% fall that analysts had predicted. On the other hand, exports shrunk by 14.5%, accelerating from the previous month’s 12.4% decrease, marking the steepest drop since the pandemic’s early days in 2020. The significant dip in imports in July aligns with the economic disruptions caused by COVID-induced closures at the beginning of the year.

Analysts believe that while weak import numbers reflect dwindling demand, the declines in commodity prices also played a role. Julian Evans-Pritchard, an expert in China’s economics at Capital Economics, observed that indicators hint at a more pronounced decline in international demand than official customs data suggests. “The near-term outlook for consumer spending in developed economies remains challenging, with many still at risk of recessions later this year, albeit mild ones.”

The revealed data had immediate financial repercussions, with the yuan hitting a three-week low. Similarly, Asian stocks, alongside the Australian and New Zealand dollars (commonly used to gauge China’s economic health), also weakened.

Adding to the dismal situation, China’s broader economic momentum slowed in Q2 due to weakening demand both domestically and internationally, prompting authorities to reaffirm their commitment to launch more policy support. Exports, particularly to major trade partners like the US and the EU, suffered amidst escalating diplomatic tensions over technology and increasing efforts to reduce dependence on Chinese markets.

Adding another layer to the complex situation, while China imported more oil in terms of volume, the financial value of these imports lagged due to lower prices. This trend was observed with other commodities, such as soybeans.

Information for this briefing was found via Reuters and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.