China’s economy probably expanded at the slowest pace in almost three years in the first quarter, setting the stage for monetary loosening and aid to exporters to drive a rebound and fuel global growth.
Gross domestic product rose 8.4 percent from a year earlier following an 8.9 percent increase in the fourth quarter, according to the median estimate of 41 economists surveyed by Bloomberg News ahead of a report tomorrow. The data may also show that industrial production and retail sales accelerated in March while spending on fixed assets slowed.
Australia & New Zealand Banking Group Ltd. and HSBC Holdings Plc predict the world’s second-largest economy will pick up this quarter as Premier Wen Jiabao cuts banks’ required reserves and directs funds to infrastructure projects and smaller companies. That would help a global expansion clouded by U.S. job gains that trailed forecasts in March and renewed concern over Europe’s sovereign-debt crisis.
“China’s slowdown is at the end of the tunnel as growth is going to start picking up pace,” said Liu Li-Gang, chief Greater China economist at ANZ in Hong Kong, who previously worked at the World Bank. “A rebound in growth starting this quarter will be a stabilizer for the world recovery as Wen’s measures boost loan growth, offsetting weaker property sales and related consumption.”
‘Worst’ Almost Over
Liu forecasts GDP expansion of 9 percent in the three months ending June 30. Bank of America Corp. predicts 8.5 percent for that quarter and 8.6 percent in the second half as “the worst is almost over” for China, said Lu Ting, a Hong Kong-based economist at the company. Deutsche Bank AG, Nomura Holdings Inc. and Daiwa Capital Markets last month raised their growth forecasts for 2012 partly on anticipation of looser monetary policy.
China has allowed the yuan to weaken 0.2 percent this year against the dollar, following 2011’s 4.7 percent gain in the currency, amid a slowdown in exports. The yuan was little changed yesterday at 6.3081.
The benchmark Shanghai Composite Index (SHCOMP) of stocks has advanced 5 percent this year through yesterday, compared with 8 percent for the MSCI Asia Pacific Index, as January-February data showed cooling production and loan growth. The Chinese gauge rose 0.4 percent today as of the 11:30 a.m. local-time break.
The World Bank today lowered its forecast for China’s growth this year to 8.2 percent from 8.4 percent as a sluggish world recovery damps export demand and domestic investment and consumption growth decelerate. A pickup in world trade next year may help drive a “mild recovery,” the institution said, raising its 2013 expansion estimate to 8.6 percent from 8.3 percent.
Wen, during a visit to Fujian and Guangxi provinces April 1-3, pledged to push ahead on key investment projects, accelerate export tax-rebate payments, and ensure “reasonable” liquidity. Executives at companies including China Shipping Group Co. (CSHGCZ), the nation’s second-largest container line, and Quanzhou-based sportswear maker Peak Sport Products Co., complained to Wen about rising costs and cooling overseas and domestic demand, state media reported.
Economic indicators have diverged so far this year. An official manufacturing survey showed a fourth straight month of expansion in March, contrasting with a similar survey by HSBC and Markit Economics that recorded the worst contraction since November. Import growth in March trailed forecasts even as exports exceeded estimates, signaling cooling domestic demand.
China’s passenger-car sales grew 4.5 percent in March from a year earlier, beating analyst estimates, as dealerships increased discounts to attract buyers amid record fuel prices.
The statistics bureau may also say tomorrow that industrial output advanced 11.6 percent in March from a year earlier, up from 11.4 percent in the two months through February.
Retail sales probably rose at a faster pace of 15.1 percent last month, while investment in factories, real estate and infrastructure expanded 21 percent in the first quarter, compared with 21.5 percent in January and February, economists estimate.
A bounce-back in the coming months is no guarantee. Authorities may “continue to respond with cautious and selective easing” because of “highly mixed” first-quarter data, said Yao Wei, a Hong Kong-based economist at Societe Generale SA. That may result in an “extended downturn,” said Yao, who estimates growth will slow from 8.1 percent in the first quarter to 7.8 percent this period, followed by a “shallow rebound” beginning in July.
China, the world’s largest consumer of steel and copper, may find its economy hampered by a contraction in the euro area and a recovery in the U.S. that Federal Reserve Chairman Ben S. Bernanke said is far from complete. Wen has also vowed to prolong property-market curbs that include higher mortgage rates and home purchase restrictions.
“The worst is not yet over for the property sector, which will see real estate investment continue to cool this quarter,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “How soon the government will start to relax property curbs will decide how strong China’s growth rebound will be.”
The central bank may lower the reserve-requirement ratio, currently 20.5 percent for large lenders, by another 100 basis points this quarter after two cuts since November, according to the median forecast in a Bloomberg survey last month. Seven out of 20 economists expect a cut in the benchmark lending rate, which has stood at 6.56 percent since the last increase in July.
“China’s growth rebound will hinge on how fast policy makers can deliver further policy easing,” said Qu Hongbin, HSBC’s chief China economist in Hong Kong. “Otherwise the slowdown may be longer and steeper than expected.”
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