Growth on slow track for rest of year: EIU

China’s economic growth will probably slow further throughout 2014, after first-quarter GDP expansion dipped to the lowest level in 18 months, researchers with the Economist Intelligence Unit said onWednesday.

The world’s secondlargest economy will expand about 7.3 percent for the full year, because the government’s mini-stimulus package announced in early April won’t support a faster pace.

“China’s GDP growth in the first quarter was slightly below our estimate but still in an acceptable range,” said Liu Qian, deputy director of China services at the EIU.

“The first quarter probably registered the fastest growth pace for this year. Growth is expected to slow to 7.1 percent in the third and fourth quarters, with the full year to see growth of 7.3 percent,” Liu said, citing the group’s latest forecast.

She added that China’s economic growth is in a structural downtrend, with expansion likely to be less than 7 percent next year, falling to 6 percent in 2020.

The economy expanded 7.4 percent year-on-year in the first quarter, the slowest growth since the third quarter of 2012. The government has announced several measures to stimulate activity, including further railway construction and more public housing.

Urban renewal, which could generate investment of more than 1 trillion yuan ($160 billion), will provide solid support for economic growth, Liu said. “But China’s GDP may not grow 7.5 percent this year without a more powerful stimulus package,” she added.

“It’s a good test to see whether the government will tolerate a growth rate below 7.5 percent, given that the central government targeted growth of about 7.5 percent for this year,” Liu added.

Xu Sitao, chief representative of The Economist Group in China, added that the government will not roll out a large-scale stimulus package as seen in 2008.

China’s leading indicators for the first two months of 2014 were disappointing. Industrial output growth decelerated to 8.6 percent on average, down from 9.7 percent in December and the slowest rate since August 2009.

Numbers like that have renewed concerns about an economic hard landing.

“Although China’s slowdown is a cause for concern, investors, in our view, are guilty of at least some overreaction. The government has made no secret of its desire to clamp down on credit-fueled growth, which has created overcapacity in China’s economy, leading to rising levels of debt and signs of stress among its banks,” said a press release from the group.

“The possibility is very low for China to have a hard landing or serious reduction in its economic growth rate in the next one or two years.

Latest data signaled an improvement of industrial output and retail spending, while urban incomes grew faster than last year.

“Even if disruptions occur in the external environment, China has enough tools to ensure short-term development,” Liu said.

She added that China’s real estate sector, on the whole, isn’t in a bubble and that its prospects are promising in the long term.

Export conditions are “quite optimistic” for this year, with estimated annual growth of 9 percent.

Fan Jianping, chief economist at the State Information Center, disagreed with Liu and said that second-half GDP growth will outstrip the first half, with full-year growth of about 7.5 percent.

“Analysts were somewhat too pessimistic about China’s economic growth at the beginning of this year. They didn’t notice the structural changes. The share of the service sector in China’s economy has surpassed that of the manufacturing sector, and the growth rate of the service Fan said.

He added that economic growth will gain momentum in the second half as the government’s support measures will boost investment and the recent renminbi depreciation will encourage exports.

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