Markets Reel on China Exports Crash, IMF Cautions

American and Chinese markets suffered a setback after Chinese exports plummeted by over 25%.  Exports fell by 25.4% according to official figures, while imports fell by over 14%. Both numbers are the worst seen since 2009, as Chinese consumers spend less and Chinese companies find less opportunities to sell to foreign firms.

The decline drove the International Monetary Fund (IMF) to issue another warning on global growth—the recent of several in the last few years.

American and Chinese markets suffered a setback after Chinese exports plummeted by over 25%.  Exports fell by 25.4% according to official figures, while imports fell by over 14%. Both numbers are the worst seen since 2009, as Chinese consumers spend less and Chinese companies find less opportunities to sell to foreign firms.

The decline drove the International Monetary Fund (IMF) to issue another warning on global growth—the recent of several in the last few years.

Noting the global economy is “clearly at a delicate juncture,” IMF chief David Lipton argued that decisive economic support that will “put the global economy on a sounder footing” is necessary, as global trade flows worsen among a pandemic slowdown in growth.

The cause of the slowdown is confused and unclear, which has alarmed economists. While the 2009 financial crisis had a clear cause—the American housing market—the weakness today seems to be caused by a number of factors that have no clear solution.

Joining the IMF in its worries, the Organization for Economic Co-operation and Development (OECD) has also noted that lower growth is expected in the U.K., America, Canada, Germany, and Japan. The weakness in Chinese growth is tied to these countries, the OECD noted, and has driven the Bank of England and Federal Reserve to point to more cautious monetary policies in the near term.

Fiscal Policy Revolution

In his speech, Lipton hinted that policymakers are failing to stimulate the economies in their markets, after having relied on Central Bank intervention for far too long.

“For the sake of the global economy, it is imperative that advanced and developing countries dispel this dangerous notion by reviving the bold spirit of action and co-operation that characterised the early years of the recovery effort,” he said, adding that “pro-growth fiscal policies” are necessary and require structural reforms.

Lipton was mute on what exactly those reforms would be, however, which may encourage politicians to push for their own pet projects, whether it be further trade liberalization, lower taxes on capital holders, or more aggressive government spending. While many economists have pushed for more aggressive fiscal reforms in European and American countries, the nature of those new fiscal policies has been fiercely debated, with little consensus emerging.

Market Responses

Markets across the world responded negatively to the news from China. U.S. Treasuries reversed from a one-month high; as the 10-year Treasury fell to 1.832% and the 2-year Treasury fell to 0.878%. This decline has intensified in 2016 even as the Federal Reserve has affirmed that interest rates will go up on short-term Treasuries in 2016.

Stocks also reversed recent gains, with the S&P 500 losing over 1% in one day followed by a 2.5% fall in China and a 0.4% fall in Hong Kong on Wednesday.  The Chinese yuan has also fallen, while crude oil futures reversed recent gains but remain above $36 for WTI futures in the U.S. and above $39 for Brent futures.