China’s growth predicted to cool to fresh seven-year low

BEIJING: China’s economic growth likely cooled to a fresh seven-year low of 6.6 per cent in the second quarter as the industrial sector loses steam and a boost from financial services fades, according to a Reuters poll of 61 economists.

Analysts expect the world’s second-largest economy to lose further momentum in the second half of the year, prompting the government and central bank to roll out more support measures even as they worry about fallout from Britain’s secession from the European Union.

That could in turn signal fresh weakness for the yuan, which recently slid to 5-1/2 year lows, adding to a wall of worry for international investors.

The expected April-June growth rate compares with 6.7 per cent in Jan-March and would be the weakest since the first quarter of 2009, when it fell to 6.2 per cent during the global financial crisis. China’s economy grew 6.9 per cent in 2015, its slowest rate in more than two decades.

Policymakers have relied on record credit expansion and an infrastructure spending spree to stabilise growth, though concerns are growing that over reliance on debt and government spending threatens a “vicious cycle” of slower growth and delayed economic reforms. Some analysts believe a huge bank restructuring may be inevitable.

An “authoritative source” in the official People’s Daily warned in May of the dangers of another massive credit-led stimulus like that during the global crisis, and economic data missed expectations in May as credit expansion started to slow.

Data in recent months have shown the government is bearing an increasing amount of the load as it struggles to put the economy on firmer footing and private investment dwindles.

Fixed-asset investment slipped below 10 per cent for the first time since 2000 in January-May as a boost from record credit growth was already fading.

Investment by private firms slowed to a record low for the year through May, with growth cooling to 3.9 per cent from double-digits last year. Private investment so far this year has been the slowest since China began publishing the data in 2012.

Economists in the poll estimated GDP grew 1.6 per cent quarteron-quarter, up from 1.1 per cent in the first quarter, though only 13 analysts gave sequential forecasts.