There was an unexpected slowdown in China’s exports growth in July, indicating softer global demand that has been bolstering growth in the world’s second-largest economy.

Last month, exports increased by 7% in Dollar terms compared to the previous year, falling below economists' average forecast of a 9.5% rise, as reported by the customs administration on Wednesday. 

In addition, imports exceeded expectations with 7.2% growth, which reduced the trade surplus to $84.65 billion from the previous month.

The slowdown in exports points to weakening global demand, which has been a crucial support for China's economy this year, especially as domestic consumers have reduced their spending. 

This poses a risk to the growth outlook for the remainder of the year, following the economy's slowest expansion in five quarters between April and June, Bloomberg reports.

“Judging from the current situation, external demand is weakening. Even though momentum is still strong in the electronics sector, the cooling of overall manufacturing activity will definitely affect trade,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd.

In July, exports to Japan, the UK, Russia, and Australia all fell, reversing the growth seen in the previous month, whilst the decline in shipments to Singapore worsened.

The ongoing dip in export prices since mid-2023 likely contributed to the slowdown in overseas shipments. 

According to Capital Economics, while export volumes softened slightly in July, they remained near record highs when adjusted for changes in export prices and seasonal effects.

“China’s unexpected export slowdown in July suggests foreign trade — the recovery’s key prop last quarter — may lend less support to 3Q GDP. The result is particularly concerning given the weakening outlook for the US economy, highlighted by the recent jump in American unemployment,” said David Qu, economist at Bloomberg Economics.

“Together with weakness in China’s retail sales, the trade data reinforce our view that 2024 growth is likely to undershoot the official 5% target unless more effective stimulus is adopted,” he added.