-ANZ Bank
China's exports dropped more than expected last month, due to a strong Yuan and weaker demand in the European Union, building pressure on Li Keqiang to stabilize growth in the world's second biggest economy. Overseas shipments declined an annualized 8.3% in dollar terms, against economists' expectations for a 1.5% drop and down from the 2.8% increase in June. Exports to the EU plummeted 12.3% in July, while those to the US slid 1.3%. Demand from Japan, another big trading partner, dived 13%. Economists blamed a strong Yuan for the exports weakness, as the currency's nominal effective exchange rate was estimated to have risen by 13.5% since June 2014. Imports, meanwhile, plunged 8.1% in July following the 6.6% decrease a month earlier. As a result trade surplus came in at $43 billion, below the forecasts of $53.25 billion. China's weak import figure partly reflects weak commodity prices paid to trading partners such as Australia, which ships coal and iron ore to China. Volume imports of most major commodities were higher than expected, as Chinese industry took advantage of the lower prices to restock on raw materials.
Meanwhile, China's inflation rose to the highest level this year in July, albeit remaining below the government's target of 3%. Consumer prices climbed to 1.6% from 1.4% a month earlier due to rising food prices. At the same time, producer prices dropped for the 40th month in a row.
© Dukascopy Bank SA