China’s exports and imports fell quicker than predicted in May, heightening concerns about the fragile economic recovery. Global demand, especially from developed economies, remained weak.

In the first quarter, the world’s second-largest economy grew faster than predicted because of strong services consumption and a backlog of orders from COVID-19. Still, factory output has slowed as rising interest rates and inflation constrain US and European demand.

On Wednesday, China’s Customs Bureau reported that exports fell 7.5% year-on-year in May, significantly higher than the 0.4% expected and the steepest drop since January. Imports fell 4.5%, slower than predicted at 8.0%, and April’s at 7.9%.

“The weak exports confirm that China needs to rely on domestic demand as the global economy slows,” said Pinpoint Asset Management chief economist Zhiwei Zhang. As global demand weakens in the second half, the government must increase local consumption.

Trade was even worse than when China’s busiest port, Shanghai, was shut down a year earlier owing to harsh COVID-19 controls.

The figures add to growing evidence indicating China’s post-COVID economic recovery is losing pace, supporting the need for greater policy stimulus.

After the data, Asian markets, the yuan, and the Australian dollar—a commodity currency sensitive to Chinese demand—fell.

China’s post-pandemic market surge has faded as small-time investors turn pessimistic on equities and double down on safer assets amid a stalling economic recovery.

The region has been impacted by falling domestic and foreign demand. Last week, South Korean semiconductor exports fell 36.2%, and shipments to China fell 20.8%, marking a year of monthly decreases. As consumer electronics exports weakened, Chinese semiconductor imports decreased by 15.3%.

Due to poor power and steel demand, coal imports fell from a 15-month high in March. May copper imports fell 4.6%. Last week’s China PMI indicated industrial activity fell quicker than predicted in May.

New orders, including exports, decreased for a second month, while industrial output contracted. As industry output slows, economists are lowering their year-end projections. After missing the 2022 goal, the administration has established a modest GDP growth target of roughly 5%.

“Looking forward, we think exports will fall further before bottoming out later this year,” said Capital Economics’ China economics head Julian Evans-Pritchard. “Although interest rates outside of China are near a peak, the lagged impact from sharp rate hikes is set to weaken activity in developed economies later this year, triggering mild recessions in most cases.”