No more double-digit growth for China exports

HSBC sees a prolonged drag as external demand continues its precipitous slide.

Exports will instead grow in the single-digit range in the coming months. Even though December exports beat pessimistic forecasts, there's little to be bullish about, given that even China's ravenous local demand is cooling fast.

Here's more from HSBC:

Although December's exports growth held up better than expected, headwinds from weakening external demand will persist in the coming months to drag exports growth to a single-digit pace. Simultaneously, the sharp deceleration of imports growth suggests still weak domestic demand. All these call for further easing measures in the form of at least another 150bp RRR cuts, tax cuts and fiscal spending. The secular trend of a narrowing trade surplus implies a slower pace of Renminbi appreciation in the coming year.

Despite initial signs of stabilization for the recent slowdown of exports, headwinds from weakening external demand will persist in the coming months, posing a big drag on China's exports growth and one of the top downside risks to Mainland growth this year. The Eurozone is likely to dip into a recession this year (HSBC forecast negative 1% growth for 2012), while US growth will continue to register below par growth in the foreseeable future despite the recent upside surprises in data.

EU uncertainties aside, the disappointing growth rates in developed world economies will inevitably trickle through to developing markets, whose growth will thus likely slow to their lowest level in the post crisis era at 5.3% y-o-y in 2012 from 6.1% in 2011 by HSBC estimation.

The next few months will be tough, as indicated by recent PMI, Taiwan exports orders and OECD leading indicators. We continue to expect China's exports to decelerate to a single digit pace in the coming months.