Beijing: China’s growth could slow further after data released on Sunday showed subdued activity right across the economy in May in the face of sustained global weakness, raising the possibility of interest rate cuts.
Evidence has mounted in recent weeks that China’s economy is fast losing growth momentum, with sluggish domestic demand failing to make up for lethargic export sales as the country’s main trading partners wrestle with their own slowdowns.
A raft of figures over the weekend added to that evidence, with exports in May posting the lowest growth in almost a year, inflation, growth in bank lending and investment below expectations and factory output and retail sales growing only about the same pace as in previous months.
“[The] activity numbers indicate continued expansion but growth remains unconvincing and the momentum seems to have lost pace in May,” Louis Kuijs, an economist at RBS, said in a note.
“The short term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further.”
China’s consumer inflation slowed to 2.1 per cent, the lowest in three months, while producer prices fell 2.9 per cent, the lowest since September. A Reuters poll had put inflation at 2.5 per cent and factory-gate prices down 2.5 per cent.
“The inflation data showed China’s economic growth continued to slow down. Second quarter growth is probably even slower than the first quarter. In particular, the PPI data showed very weak demand,” said Jianguang Shen, chief China economist at Mizuho Securities Asia in Hong Kong.
Separate central bank data showed that Chinese banks lent 667.4 billion yuan (Dh399.6 billion, $109 billion) in new loans in May, missing market expectations of 850 billion yuan and lower than April’s 792.9 billion yuan.
M2 money supply rose 15.8 per cent from a year earlier, slightly below a median forecast of 15.9 per cent, while total social financing, a broad measure of liquidity, was 1.19 trillion yuan versus 1.75 trillion yuan in April.
Meanwhile, growth in retail sales, fixed-asset investment and industrial output met expectations at 12.9 per cent, 20.4 per cent and 9.2 per cent respectively, but the figures were little changed from the previous month. On Saturday, official data showed that China’s exports posted their lowest growth rate in almost a year in May while imports unexpectedly fell.
Rates and other remedies
China’s economy grew at its slowest pace for 13 years in 2012, and it has so far surprised on the downside, bringing warnings from some economists that the country could miss its growth target of 7.5 per cent for this year.
The weak data will enable China to keep an easy monetary stance and some see the possibility that the People’s Bank of China could cut rates later this year to reduce financing costs for struggling Chinese firms, provided that housing inflation does not flare up.
“We had expected an L-shaped economic recovery in China and that the growth would stabilise at around 7.9 per cent,” said Jian Chang, China economist for Barclays in Hong Kong.
Most economists agree however that the government will not be looking to a fresh stimulus package along the lines of its 4 trillion yuan one unleashed during the global crisis in 2008.
That package sparked a lending boom that fuelled a property bubble and left local governments under a pile of debt.
The new leadership is keen to push reform of the economic structure rather than just throw money at the existing one.
Sources had told Reuters in May that a consensus had been reached among top leaders that reforms would be the only way to put the world’s second-largest economy on a more sustainable footing.
