Chinese economy fails to pick up steam
Growth falls short of forecasts
GROWTH in China’s investment, retail sales and factory output all missed forecasts in January and February and fell to multi-year lows, leaving investors with little doubt that the economy is still losing steam and in need of further support measures.
The figures came a day after data showed deflationary pressures intensified in the factory sector in February, reinforcing expectations of more interest rate cuts and other policy loosening to avert a sharper slowdown in the world’s second-largest economy.
“Activity data surprised the market on the downside by a large margin, suggesting that China’s first quarter gross domestic product growth could likely fall to below 7 percent,” ANZ economist Li-Gang Liu said in a research note.
“In our view, the extremely weak data at the beginning of the year suggest that China needs to engage in more aggressive policy easing, and we see that a reserve requirement ratio cut will be imminent,” he said, adding that stimulus measures rolled out since last year seemed to have had a limited effect.
Industrial output grew 6.8 percent in the first two months of the year compared with the same period a year ago, the National Bureau of Statistics said yesterday, the weakest expansion since the global financial crisis in late 2008. Analysts had forecast a 7.8 percent rise, down slightly from December.
Retail sales rose 10.7 percent, the lowest pace in a decade and missing expectations for a 11.7 percent rise.
Fixed-asset investment, a crucial driver of the Chinese economy, rose 13.9 percent, the weakest expansion since 2001 and compared with estimates for a 15 percent gain.
“Fixed-asset investment will likely face even more challenges,” economists at Credit Suisse said in a note this week, adding that crackdowns on corruption and shadow banking had heavily squeezed spending by local governments.
“Local officials and executives at state-owned enterprises are more worried about their jobs than investment… The central government is pushing out more investment projects, but with the aim of partially offsetting losses in local investment, rather than accelerating growth.”
China combines its January and February data releases for investment, retail sales and factory output to minimise distortions from the Lunar New Year holiday, which fell in late January last year but in mid-February this year.
Sluggish factory activity reinforces expectations that China’s economic growth will slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014, even with expected additional stimulus measures. Power generation rose 1.9 percent in January and February from a year earlier, well below the 3.2 percent seen in all of 2014.
Yin Weimin, the minister of human resources and social security, cautioned this week that China’s labour market also faced greater pressure. Employment had fallen more in January and February than in the same period last year, he said.