Chinese imports dip shakes markets

http://www.guardian.co.uk/business/2012/feb/10/chinese-imports-drop-shakes-markets

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A sharp drop in Chinese imports, a gloomy outlook for global oil demand and a burgeoning US trade deficit combined to fan growing fears over a deteriorating global economy.

Signs that demand was slowing in China raised concerns for nations relying on exports to grow out of the economic crisis.

There was a further blow when the International Energy Agency (IEA) cut its oil demand forecast for a sixth consecutive month, citing a weak global economy.

China said its imports fell in January at the fastest annual pace since the lowpoint of the global financial crisis in 2009. At the same time its exports fell, putting in their worst performance for more than two years.

As wrangling continued over a solution to Greece's problems, there were signs that the eurozone crisis and the knock-on effect on demand was hurting Chinese exporters. Their sales to the European Union suffered the first annualised fall for almost a year. Exports to the US put in their worst performance for a year as growth slowed markedly.

However, it was the fall in imports that exercised market traders. Many countries, including the UK, have been pinning hopes on robust Chinese demand to boost exports and offset weak demand in domestic and developed markets.

Analysts cautioned against reading too much into China's January trade figures, which were disrupted by an unusually high number of public holidays this year due to week-long lunar new year celebrations, which fell in February last year.

"Exports per working day grew, suggesting that growth in external demand for Chinese goods is only gradually decelerating," said Wei Yao, at Société Générale. "Even taking the holiday into account, however, the import numbers were surprising. January was the second month in a row of much slower than expected import growth."

Whatever the reasons for China's exports dip, it will do little to quell criticism from overseas policymakers that Beijing is keeping its currency artificially weak to gain a competitive advantage over other exporters.

Those concerns, held particularly among American politicians, were underlined by news of a record trade gap between the US with China in 2011. Data from the US commerce department showed the gap grew 8.2% last year. Imports from China were almost four times as high as US exports into the country.

The US data reinforced concerns about waning global demand and the far-reaching effects of the eurozone crisis. The final three months of 2011 showed a marked slowdown in US export growth, led by deteriorating business with the eurozone.

"With the danger that the eurozone enters a deep recession still very real, weaker demand from Europe will mean that overall US exports may struggle to rise at all this year," said Paul Dales, senior US economist at Capital Economics.

Fears that the global economy was deteriorating again after some brief-lived new year's optimism were reflected in the IEA's latest forecast for oil demand. The agency believes demand will now grow by less than 1% in 2012.

"This month's report dwells on recent economic downgrades, and resultant weaker oil products demand growth for 2012," the IEA said. "This is providing a ceiling for otherwise stubbornly high crude prices."

Assuming a technical recession – two consecutive quarters of contraction – for a large part of Europe, the agency said, the region was likely to record the world's biggest relative decline in oil demand this year.