China's Trade Data Baffle Even the Experts as Forecasts Miss Big

(Bloomberg) -- With the world’s attention focused on China’s outsize trade surplus, economists are having a hard time getting their forecasts right for that very data.

Exports fell 2.7 percent from a year earlier in March, taking most forecasters by surprise, as did the ensuing $4.98 billion monthly deficit. In fact, the median estimates of 32 economists surveyed by Bloomberg were for export growth of 11.8 percent and a $27.5 billion surplus.

In February economists projected export growth of 11 percent, whereas it surged a whopping 44.1 percent. In other words, they’re off by miles.

China's Trade Data Baffle Even the Experts as Forecasts Miss Big

This doesn’t often happen, but there is precedent. In February 2015, exports surged 48.2 percent versus a projection of 14 percent. And in March that year, a 15.1 percent decline came in against estimates for a 9 percent jump. Estimates in early 2014 were also awry.

The key to getting it right, according to those forecasters who came closest to this month’s print, is gauging the seasonal effect of the week-long Lunar New Year break correctly. Factories shut down for weeks on end around the traditional holiday. As it’s set by the lunar calendar, it began on Feb. 15 this year and Jan. 27 last year.

It gets more complicated when the holiday falls late or early in a month, meaning that the effect on output will spill over into the neighboring period. That was the case this year and the factor behind the March drop, according to Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai and the most accurate forecaster for the month.

Factories also respond differently to the holiday, with some ramping up production earlier to take account of the break while some may close for more or less time than the others. And if other forces are at play -- such as a stronger currency or wavering confidence on future shipments -- then it becomes hard to predict behavior.

Paying attention to under-the-hood data is the secret, according to Deng Haiqing, chief economist at JZ Securities Co. in Beijing, who also accurately projected a decline. He uses a data point buried in the monthly industrial production data to help gauge the next month’s exports.

The “value of exports delivered” line in that report -- meaning goods produced for export but not necessarily shipped -- was sharply lower than actual exports in January and February this year, Deng wrote in a note.

That indicated that the surge in February data was a one off and the March figure would show a significant drop, Deng wrote.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net.

©2018 Bloomberg L.P.

With assistance from Xiaoqing Pi