February 8, 2013 11:29 pm

Trade surge hints at renewed growth

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A run of strong trade data from three of the world’s largest economies has raised hopes for global growth prospects in 2013.

China and the US both recorded strong growth in exports, while in Germany, data from the federal statistics office showed a €188bn trade surplus for 2012 in Europe’s largest economy – its second-highest in 60 years.

Robust growth in total trade volumes will help to ease tensions about “currency wars” and support demand as advanced countries try to tackle their budget deficits.

In the US, an expected reduction in the trade deficit for December to $38.5bn – from $48.6bn the month before – means that estimates of total growth in the fourth quarter will almost certainly be revised upwards.

The initial estimate that the economy had shrunk by 0.1 per cent, which caused some alarm when it was released at the end of January, was partly due to weak trade.

In the December trade figures, US exports increased by a healthy 2.1 per cent on the previous month, while non-oil imports shrank by 1.5 per cent.

Chinese exports and imports rose strongly in January, pointing towards solid growth both in China and abroad at the start of 2013, and inflation also receded, slowing to 2 per cent from 2.5 per cent in December.

But analysts called for caution in interpreting the Chinese figures because this coming week’s Spring Festival holiday at the lunar new year will have caused significant distortions, since companies tried to push as much business as possible into January before work halts.

Moreover, the timing of the holiday – which fell in January last year but February this year – has probably made year-on-year trade growth appear stronger, and inflation weaker, than is really the case.

Chinese exports rose 25 per cent from a year earlier, the fastest pace since April 2011 and up from 14.1 per cent in December. Imports increased 28.8 per cent, more than four times December’s 6 per cent rise.

The boom in imports trimmed China’s trade surplus to $29.2bn in January, from $31.6bn a month earlier.

When the combined data for the first two months of the year are published in early March, a much clearer picture of the health of the Chinese economy will emerge.

“So far, what we have seen supports the view that China’s recovery is continuing. But it will be a modest recovery,” said Zhu Haibin, an economist with JPMorgan.

Zhang Zhilei, an economist at Nomura, said the surge in trade was clearly a positive sign.

“This strong export number cannot be fully explained by the Chinese new year effect alone,” he said. “These data suggest that external and domestic demand are both strong, which supports our view that the economy is on track for a cyclical recovery in the first half.”

In Germany, both exports and imports fell in December compared with their levels a year earlier, reflecting weakness in Europe’s largest economy in the fourth quarter, which is expected to improve this year.

In contrast to China, there have been calls for Germany to reduce its trade surplus by stimulating domestic demand to raise imports as a step towards reducing economic imbalances within the eurozone.

However, Christian Schulz, economist at Berenberg Bank, noted that exports to eurozone partners fell by 2.1 per cent, while imports rose by 0.7 per cent last year. Germany’s trade surplus with other eurozone countries was a modest €8bn. “This data suggest that trade imbalances within the eurozone have disappeared,” he said.

Although a loss of German competitiveness compared with other eurozone countries could help promote growth in those countries, Mr Schulz argued that its leading role as exporter to countries such as China – often with finished goods incorporating parts from eurozone partners – meant it would be more beneficial for Germany to maintain its edge.

“The rest of the eurozone has a strong interest in Germany remaining competitive on a global level,” he said. “Germany’s success in exporting to the rest of the world thus looks reassuring.”

China growth slowed to 7.8 per cent in 2012, its weakest year for more than a decade, but it began to recover in the final quarter, and many economists expect the momentum of that upturn to continue through into the start of this year.

The Shanghai Composite, China’s main stock index, rose 0.8 per cent in trading on Friday, adding to the 23 per cent rally since the start of December.

With growth rebounding, the Chinese central bank said in a report this week that controlling inflation had become a priority.

The big rise in imports was partly a reflection of the return of inflationary pressures. Raw material prices have jumped in recent months, with iron ore, a crucial ingredient in steelmaking, up 80 per cent since September.

This helped to push Chinese producer prices up 0.2 per cent from a month earlier.

“The risk of high inflation will re-emerge in the second half of the year,” ANZ economists said in a note to clients.

Additional reporting by Emma Dong in Beijing

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