China, India Signal Global Economic Slowdown

Economic data from China and India suggest global demand has halted and economic activity may decline further in the future.

In China, exports fell by double digits in March, the worst data to come from the largest Asian economy in over a year. In total, exports fell 15% in total, a decline attributed largely to the strength in the Chinese yuan, which has made exports less competitive relative to other manufacturing countries.

Economic data from China and India suggest global demand has halted and economic activity may decline further in the future.

In China, exports fell by double digits in March, the worst data to come from the largest Asian economy in over a year. In total, exports fell 15% in total, a decline attributed largely to the strength in the Chinese yuan, which has made exports less competitive relative to other manufacturing countries.

However, some economists note that, currency fluctuations aside, China’s industrial markets have a wide “moat” that make them immune to much competition from abroad. More than currency changes may be driving the fall in exports and it may indicate aggregate demand around the world has weakened.

That argument gained strength when the General Administration of Customs for China announced that coal imports fell over 40% in the first quarter of 2015, an indication that energy demand has fallen in China resulting from less purchasing orders for manufactured goods. If the decline in energy consumption is a leading indicator of manufacturing output, the fall in coal could suggest that China’s trade has slowed because of a fall in demand from within China and from foreign trading partners.

A fall in imports also indicates weak demand, which fell 17.6% in the first quarter of 2015 from a year ago, after rising by 1.6% year-over-year in the first quarter of 2014.

A rising yuan is likely going to make demand even weaker in China, according to China Customs Office spokesman Songping Huang, who told reporters that high financing and labor costs, combined with a rising yuan was making China less competitive internationally. The costs “remain stubbornly high and the competitive advantage of the traditional foreign trade has been weakened,” he said.

India CPI Weakens

To the west of China, India is also signaling unexpected weakness, as inflation slowed unexpectedly despite many expectations that a more lax monetary policy could drive inflation higher.

The India Consumer Prices Index rose 5.17% in March from a year ago, after rising 5.37% year-over-year in February. That was significantly lower than expectations, and is far below the 6.7% inflation rate that India saw in 2014.

Expectations were for high inflation in India as economic growth in the country remains higher than most parts of the world, driving consumption and raising prices. India saw its GDP grow by 7.5% in the last quarter of 2014, a sharp re-acceleration that caused many analysts to anticipate rising inflation rates for 2015.

At its current rate, Indian inflation is the second highest in Asia, below Indonesia. Some analysts believe its inflation rate could rise later in the year resulting from low crop yields due to bad weather, as well as a rate cut by the Reserve Bank of India, which many analysts predict will come by the end of 2015.