Daily Management Review

A Poll Suggests China Third-Quarter Growth Dipping to 6.8 percent, Weakest Since 2009


10/14/2015




A Poll Suggests China Third-Quarter Growth Dipping to 6.8 percent, Weakest Since 2009
For the first time since the global financial crisis, China's economic growth is expected to fall below 7 percent as reported in the third quarter performance of the country’s economy
 
This has put more pressure on policymakers to roll out more support measures as fears of a sharper slowdown spook investors.
 
After a shock devaluation of the yuan, the Chinese leaders have been trying to reassure global markets that Beijing is able to manage the world's second-largest economy and a summer stock market plunge fanned fears of a hard landing.
 
But now after decades of breakneck expansion, even the government concedes the economy is entering a slower growth phase.
 
According to a Reuters poll of 50 economists, China’s growth in third-quarter gross domestic product (GDP) likely slowed to 6.8 percent from the same period last year and it was 7 percent in the second quarter. Therefore the third quarter has shown slower growth than the second quarter.
 
In the first quarter of 2009 the Chinese growth had tumbled to 6.2 percent and the third quarter growth projections this year would be the weakest pace of expansion since then. However the results would be far from an alarming loss of momentum.
 
Though some investors fear current growth levels could already be much weaker than the official data will suggest, the highest forecast in the poll was 7.2 percent and the lowest was 6.4 percent.
 
"We expect the government to maintain loose monetary policy and step up fiscal spending in response to the economic slowdown. We believe that loosening measures may help cushion the slowing momentum in economic growth but it's difficult to reverse the long-term downward trend," economists at China International Capital Corp (CICC), a domestic investment bank, said in a note.
 
While some economists believe government statistics may actually be underestimating consumption and strong service sector growth, a surprisingly resilient reading on Monday could reinforce scepticism about the reliability of Chinese official data.
 
The annual economic growth in the first two quarters was 7.0 percent in China despite weak exports and imports, industrial overcapacity and a property downturn. With the government rejecting suggestions that the figures were being inflated to meet official forecasts, the 7% growth rate was in line with Beijing's full-year target.
 
By pump-priming the economy to meet this year's growth target, China's policymakers think they can stem a rapid rundown of the country's foreign exchange reserves and ease pressure on the currency, said sources involved in policy discussions say.
 
Market experts are of the view that the central bank of China would deliver another 25-basis point (bps) cut in interest rates and two cuts in bank reserve ratios totaling 100 bps by year-end.
 
While producer prices extended their slide to a 43rd straight month, China's consumer inflation cooled more than expected in September which indicated the urgency for the central bank to tackle deflationary pressures.
 
While reducing the amount of cash that banks must hold as reserves to spur activity, the central bank of China has already cut interest rates five times since November.

Increased government spending on infrastructure and easing down payment requirements and other curbs on the cooling property sector are some of the other support measures that the Chinese authorities have taken to stabilize the market and fuel growth. While the intervention in the property market have been able to in reviving weak home sales and prices but have not yet reversed a sharp decline in new construction which is weighing on demand for materials from cement to steel.
 
(Source:www.reuters.com) 






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