China February exports seen roaring back, but deflationary risks still lurking

Wed Mar 4, 2015 10:35pm EST
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BEIJING (Reuters) - China's exports likely recovered in February after a grim January reading, a Reuters poll showed, but inflation remained anemic, keeping pressure on policymakers to roll out more support measures to meet new economic targets.

Premier Li Keqiang said on Thursday that the government would target growth of around 7 percent this year, down from 7.4 percent in 2014 and signaling the slowest expansion for a quarter of a century.

A cooling property market, excess manufacturing capacity, deflationary pressures and a continued crackdown on corruption are all expected to weigh on the economy in 2015, prompting further cuts in interest rates and bank reserve requirements.

The median forecast of 16 analysts showed annual export growth probably shot up to 14.2 percent on an annual basis in February, recovering from a 3.3 percent contraction in January that surprised analysts.

Imports are seen declining again, however, dropping 10.0 percent - an improvement compared to a plunge of 19.9 percent in January that shocked markets, but still highlighting stubborn weakness in domestic demand. The data will be released on Sunday.

Data out of China during January and February is typically skewed by the timing and impact of the Lunar New Year holiday, making it hard to assess the trends in the world's second-largest economy.

The forecasts follow both official and private purchasing managers' surveys earlier in March which showed February manufacturing activity recovering slightly but remaining weak.

"Activity growth since the start of 2015 has likely been weak - weak enough that despite the low base from early 2014 year-on-year growth of most activity indicators will likely fall," said Goldman Sachs analysts in a research note.

Inflation estimates suggested that Chinese companies continue to struggle with sliding prices even as the real cost of capital remains high, a further disincentive to investment.   Continued...

A truck drives past shipping containers at a port in Lianyungang, Jiangsu province January 23, 2015.  REUTERS/China Daily