China Q1 GDP growth seen dipping to 6-year low, more policy stimulus on cards

15 Apr7:54 AM

[BEIJING] China's annual economic growth likely slowed to a six-year low of 7 per cent in the first quarter as demand at home and abroad faltered, fanning expectations that authorities will have to roll out more policy stimulus to avert a sharper slowdown.

Chinese reform-minded leaders, while emphasizing the need to adapt to "a new normal" of slower but better-quality growth, have signalled growing concern about a deeper downturn that could fuel job losses and debt defaults.

Premier Li Keqiang said last week the world's second-largest economy faces increased downward pressures and the government must "stand up to" such pressure to avoid an impact on employment and incomes.

Data on Wednesday is expected to show the economy grew 7 per cent in the January-March quarter from a year earlier - the worst showing since the depth of the global crisis - from 7.3 per cent in the previous quarter, a Reuters poll showed.

China's growth tumbled to 6.6 per cent in the first quarter of 2009 when millions of migrant workers lost jobs. A massive stimulus package pulled the economy out of the slump but at the cost of saddling local governments with a mountain of debt.

NAGGING FACTORY DEFLATION

Employment still holds up due to a faster-expanding services sector, but weaker growth and nagging factory deflation could force more manufacturers to cut jobs, analysts say. "The economy faces rather big downward pressures and we cannot rule out the possibility of sub-7 per cent in the first quarter," Nie Wen, an economist at Hwabao Trust in Shanghai. "The problem of unemployment may show up if GDP growth continuously stays below 7 per cent." Data released on Monday showed that China's export sales contracted 15 per cent in March from a year earlier, a shock that deepened concern about sputtering Chinese economic growth, while import shipments shrank 12.7 per cent.

Earlier data showed consumer inflation remained tepid in March while factory deflation persisted.

Economists expect the central bank, which has cut interest rates twice since November and once reduced the amount of cash the banks must hold as reserve, to dole out more policy easing. They also anticipate the government will jack up infrastructure spending.

PACKAGES READY?

Analysts say such stimulus is needed for the government to hit its full-year growth target of around 7 per cent, which would be the slackest in a quarter of a century. "We expect that the data releases this week will prompt enhanced fiscal and monetary support for the growth agenda, and that policy response packages are ready to go," analysts at PRC Macro Advisers said in a research note.

The National Bureau of Statistics will also release March activity data along with GDP, which may offer some clues on the economic performance in the second quarter.

March factory output is forecast to rise 6.9 per cent from a year earlier, compared with the 6.8 per cent increase in January-February combined and hovered near the lowest since the global financial crisis.

Fixed asset investment, a key driver of the economy, likely grew 13.8 per cent in the first quarter from a year earlier, which would be the weakest expansion in the first three months of a year since 2000. For January-February combined, there was a 13.9 per cent annual rise.

Property investment and sales data may give some indication on whether recent easing of mortgage rules has gained traction.

REUTERS