China’s exports slumped in July, as faltering demand from the country’s two biggest foreign customers, the European Union and United States provided further evidence that the global economy is stalling.

Chinese export growth in July dropped to just one per cent compared to the eight per cent expected by a Bloomberg poll of economists, a shocking fall for the world’s largest exporter as the summer draws to a close.

‘Economists are still underestimating the extent of the slowdown’, Sean Darby, chief global equity strategist at Jefferies n Hong Kong told Bloomberg. ‘Things are much, much worse than expected, and this trade data will only get worse in the next quarter. More interest rate cuts will come.’

Policy response

It is the scale and the effectiveness of the Chinese policy response that is now the focus of debate. Can China repeat the massive stimulus of 2008 to beat the slump? And would it work again if it did?

Many now think that China’s central bank will further relax the amount of cash banks must hold as reserves to bolster growth.

“In the very short term, we think Beijing will make one more attempt to revive confidence, with an imminent 50bp reserve requirement ratio cut most likely,” said Ms Yao .