China February export, import growth seen slowing further

BEIJING Tue Mar 4, 2014 5:19am EST

A woman walks past containers at a port in Shanghai January 13, 2009. REUTERS/Aly Song

A woman walks past containers at a port in Shanghai January 13, 2009.

Credit: Reuters/Aly Song

BEIJING (Reuters) - China's export and import growth likely slowed in February, causing its trade surplus to shrink by more than half, a Reuters poll showed, reinforcing views that its economic momentum is weakening as leaders prepare to unveil key targets for 2014.

Soft manufacturing numbers for February have heightened concerns about the extent of the slowdown in the world's second-largest economy, thought its services sector appears to have regained some momentum.

Export growth is expected to ease to 6.8 percent in February compared with a year earlier, compared with 10.6 percent in January. Import growth will also dip, to 8.0 percent, from 10.0 percent.

As a result, the February trade surplus is likely to drop to $14.50 billion, from $31.86 billion in January.

Still, analysts cautioned against reading too much into the figures for the first two months of the year.

"Chinese New Year continues to play havoc with incoming data," Mark Williams and two other Capital Economist economists in a note.

"The rush to complete orders ahead of the festival appears to have boosted exports in January. With this factor no longer supporting exports in February, we suspect that headline export growth will have cooled."

To help smooth out distortions from the week long holiday, which fell predominantly in early February this year, the statistics bureau will release combined data on retail sales, industrial output and investment for January and February next week.

The combined figures for all three indicators are expected to show a slightly slower rate of growth than in December.

"We expect January and February's combined data set to show the Chinese economy kicking off 2014 on a weaker, but still acceptable pace," Tao Wang and other economists at UBS in a note.

A surge in new loans last month will also likely taper off sharply in February, the poll showed.

In January, new loans totaled 1.3 trillion yuan ($211.51 billion), more than double December's figure and on par with 1.07 trillion yuan ($174.09 billion) at the same time in 2012. In February, loans are predicted to fall to 716 billion yuan ($116.49 billion).

The broad M2 money supply is likely to stay steady in February at 13.2 percent, according to the poll.

Consumer inflation is expected to ease to 2.0 percent from 2.5 percent in January, while the producer price index is expected to drop 1.9 percent, falling for a 24th straight month and faster than a decline of 1.6 percent in January.

Trade and inflation data will be released this weekend.

DIFFICULT TO ASSESS

Recent economic data for the economy has been mixed, and the long Lunar New Year holiday has made it harder to assess momentum. Weak investment and declining manufacturing PMI readings have been countered by surprisingly buoyant exports and bank lending.

But weakening output has created concern that the Chinese factory sector is dragging on global activity alongside that of the United States, while European manufacturers have enjoyed a solid start to the year.

As a long-term goal, China has been trying to reduce the economy's dependence on exports and enhance the role of domestic consumption, but it is unclear how much growth it might be willing to sacrifice to reach that goal.

In 2013, China's economy grew 7.7 percent, steady from the previous year and just ahead of the official target of 7.5 percent, which would have been the slowest growth since 1999.

Some analysts have said weak numbers would encourage the government to loosen monetary policy to keep the economy growing at 7.5 percent, which government economists have said could again be the official target this year.

But others disagreed.

"Policymakers are aware of the patchy and distorted nature of data at the start of every year, so will unlikely make any significant policy changes in the near term," said Tao Wang and the other UBS economists, in their note.

China's leaders will unveil major economic targets and reform priorities for this year at the start of an annual parliament meeting on Wednesday.

($1 = 6.1462 Chinese yuan)

(Reporting By Adam Rose; Editing by Kim Coghill)

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