Wednesday 29 March 2017

China third-quarter growth expected to be weakest since 2009

Chinese President Xi Jinping
Chinese President Xi Jinping

China's economic growth is expected to fall below 7pc for the first time since the global financial crisis in the third quarter, putting pressure on policymakers to roll out more support measures as fears of a sharper slowdown spook investors.

Chinese leaders have been trying to reassure global markets that Beijing is able to manage the world's second-largest economy after a shock devaluation of the yuan and a summer stock market plunge fanned fears of a hard landing.

But even the government concedes the economy is entering a slower growth phase after decades of breakneck expansion.

Growth in third-quarter gross domestic product (GDP) likely slowed to 6.8pc from the same period last year, down from 7pc in the second quarter, according to a Reuters poll of 50 economists.

That would be the weakest pace of expansion since the first quarter of 2009, when it tumbled to 6.2pc, but far from an alarming loss of momentum.

The highest forecast in the poll was 7.2pc and the lowest was 6.4pc, though some investors fear current growth levels could already be much weaker than the official data will suggest.

"We expect the government to maintain loose monetary policy and step up fiscal spending in response to the economic slowdown," economists at China International Capital Corp (CICC), a domestic investment bank, said in a note.

"We believe that loosening measures may help cushion the slowing momentum in economic growth but it's difficult to reverse the long-term downward trend."

Instead of calming financial markets, a surprisingly resilient reading on Monday could reinforce scepticism about the reliability of Chinese official data. However, some economists believe government statistics may actually be underestimating consumption and strong service sector growth.

Despite weak exports and imports, industrial overcapacity and a property downturn, annual economic growth in the first two quarters was 7pc, in line with Beijing's full-year target, with the government rejecting suggestions that the figures were being inflated to meet official forecasts.

Sheng Laiyun, spokesman for the National Bureau of Statistics, said last month that third-quarter economic growth will be largely stable as the impact from the stock market slump on the broader economy has been limited.

The bureau has changed the way quarterly gross domestic product data is calculated, a move it calls a step to adopt international standards and improve the accuracy of Chinese numbers.

China's policymakers think they can stem a rapid rundown of the country's foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year's growth target, sources involved in policy discussions say.

The CICC expects the central bank to deliver another 25-basis point (bps) cut in interest rates and two cuts in bank reserve ratios totalling 100 bps by year-end.

China's consumer inflation cooled more than expected in September while producer prices extended their slide to a 43rd straight month, highlighting the urgency for the central bank to tackle deflationary pressures.

The central bank has already cut interest rates five times since November, and reduced the amount of cash that banks must hold as reserves to spur activity, though some analysts say such moves have not been as effective as in the past when the economy was more tightly controlled and debt levels were much lower.

Other support measures have included more government spending on infrastructure and easing down payment requirements and other curbs on the cooling property sector, which have succeeded in reviving weak home sales and prices but have not yet reversed a sharp decline in new construction which is weighing on demand for materials from cement to steel.

A raft of monthly indicators will be released with the GDP

data, and analysts will be looking for signs as to whether momentum is still fading or if the economy may be slowly stabilising.

Factory output likely grew 6pc in September from a year earlier, slowing from August's 6.1pc rise, as firms struggle to cope with persistent deflationary pressures due to overcapacity and softening demand.

Annual growth of fixed-asset investment, a crucial driver of China's economy, likely eased to 10.8pc in the first nine months of 2015 - the weakest expansion in nearly 15 years - from 10.9pc in January.

Annual retail sales growth was seen at 10.8pc in September, unchanged from August.

China's exports fell less than expected in September, with monthly figures showing recovery, but a sharper fall in imports left economists divided over whether the country's ailing trade sector is showing signs of turning around.


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