Shares in mining companies fell heavily in the City on Tuesday after the biggest fall in China’s exports in almost seven years rekindled concerns about the impact of a slowdown in the world’s second-biggest economy on the rest of the world.
Official figures released in Beijing showed that exports in February were down 25.4% on a year earlier, the worst performance since May 2009, the trough of the global recession.
News that imports were down by 13.8% – the 16th successive decline – resulted in a reversal of the recent rally in the price of oil and industrial metals.
David Lipton, deputy managing director of the IMF, warned that global trade flows were being dragged down by weak export and import growth in three of the leading emerging market countries – China, Russia and Brazil – which he said were coming “under considerable stress”.
Analysts said the timing of the Chinese new year exaggerated the weakness of exports, but that sales of goods overseas – the mainstay of the economy during its rapid growth of the past three decades – had still been poor.
China posted a trade surplus of $32.59bn (£23bn) for the month, down from $63.29bn in January, the General Administration of Customs said.
The worse-than-expected Chinese trade data sent leading shares sharply lower, with UK, German and French markets all down around 1% by the close of trading on Tuesday. On Wall Street, the Dow Jones Industrial Average was down 0.7% by midday.
The FTSE 100 finished down 56.96 points, or 0.92%, at 6125.44, with commodity companies the main fallers.
A fall in the oil price also hit sentiment, as Brent crude fell back below $40 a barrel. It dropped 2.5% to $39.82 following suggestions from Goldman Sachs that the recent rally was overdone and comments from Kuwait suggesting it would not participate in a production freeze unless other major producers, including Iran, followed suit.
Commodity companies made up seven of the top 10 fallers in the FTSE 100 as investors cashed in on recent gains in the sector.
Glencore dropped 18% to 139.75p, also hit by news of a mining accident, with at least two fatalities, in the Democratic Republic of Congo.
Anglo American lost 15% to 530.9p while Antofagasta and Rio Tinto both fell more than 9%. BP ended 3% lower at 354.2p.
Speaking in Washington, Lipton said immediate action was needed to boost a flagging global recovery.
“What may be most disconcerting is that the rise in global risk aversion is leading to a sharp retrenchment in global capital and trade flows. Last year, for example, emerging markets saw about $200bn in net capital outflows, compared with $125bn in net capital inflows in 2014.
“Trade flows meanwhile are being dragged down by weak export and import growth in large emerging markets such as China, as well as Russia and Brazil, which have been under considerable stress.”
China’s growth slowed last year to 6.9%, its slowest in a quarter of a century, and a further easing is expected in 2016 as the country seeks to end its reliance on exports and rebalance its economy towards consumer spending.
After decades in which China has been a magnet for foreign capital and for the commodities needed to power its industrial development, Lipton said financial markets were still trying to work out what the transition to a new economic model meant for trade and investment flows.
China’s February trade performance was far worse than economists had expected, with analysts polled by Reuters predicting that exports would decline by 12.5% and imports by 10%.
“The sharp drop in imports also shatters the hope that China is rolling out a stimulus package that would boost the demand for commodities,” said Zhou Hao, senior emerging markets economist at Commerzbank in Singapore.
“The recent rally in bulk commodities, led by iron ore, might be only short-lived.”
