Continued global growth momentum required to maintain China’s export growth, says Nordea Bank

Data released in April has given a mixed picture of the Chinese economy. Even if FX reserves came in upbeat, disappointing trade growth might be the start of a trend, noted Nordea Bank in a research report. This provides that the underlying demand is not rock solid and risk continue to be large.

The foreign exchange reserves were up surprisingly by USD 20.4 billion to USD 3.02 trillion. Valuation effect from a subdued USD in April has added to the lion’s share to the rise. Moreover, capital outflows are under control, owing to tighter rules and a stable currency.

The improved situation has prompted China to calm capital restrictions modestly. Capital restrictions on capital outflows are expected to be quite tight for most of this year. However, if foreign exchange volatility remains at the current low levels, a loosening might begin at the end of the year, stated Nordea Bank.

China’s trade figures were less upbeat for April. In dollar terms, the nation’s exports expanded 8 percent year-on-year, while imports grew 11.9 percent in the month. Both the figures were below the March print and consensus expectations. The disappointed growth was driven by lower export growth to most of its major partners. Exports to the EU and U.S. have dropped from its peak.

“While the global growth momentum remains strong, continued growth improvement is needed to maintain Chinese export growth of 15-20 percent, added Nordea Bank.