USD-denominated exports dropped sharply by -20.7% y/y in February and imports contracted by -5.2%. For now it is probably too early to blame external and domestic demand for this fall as January and February figures are generally distorted by the Chinese New Year holidays. A more nuanced approach consists in averaging the first two months in order to reduce the seasonal effect. This points to decreases of exports by -4.6% y/y and imports by -3.1% y/y in January-February. Looking forward, we expect this trend to reverse from Q2 onwards. Based on the first nine days of March (+39.9% y/y for exports) China’s customs chief predicts a strong recovery. Our view is that this is plausible, assuming that China and the U.S. find a trade agreement by Q2. On the import side, we expect domestic demand to get some traction helped by expansionary policies (5% of GDP fiscal package) and more generous monetary conditions. GDP growth is set to remain relatively solid at +6.4% in 2019.
