China’s economic growth dipped below 7 percent for the first time since the global financial crisis yesterday, hurt partly by cooling investment, raising pressure on Beijing to further cut interest rates and take other measures to stoke activity.
The world’s second-largest economy grew 6.9 percent between July and last month from a year ago, China’s National Bureau of Statistics said, slightly better than forecasts of a 6.8 percent rise, but down from 7 percent in the previous three months.
That hardened expectations that China would avoid an abrupt fall-off in growth, with analysts predicting a more gradual slide in activity stretching into next year.
Chinese leaders have been trying to reassure nervous global markets for months that the economy is under control after a shock devaluation of the yuan and a summer stock market plunge fanned fears of a hard landing.
Some analysts were hopeful that the third-quarter cooldown could mark the low point for this year as a burst of stimulus measures rolled out by Beijing comes into force in coming months, but muted monthly data for last month kept such optimism in check.
“As growth slows and risk of deflation heightens, we reiterate that China needs to cut reserve requirement ratio by another 50bps in Q4,” Australia and New Zealand Banking Group Ltd (ANZ) said in a note to clients. “Looming deflation risk suggests that the People’s Bank of China will also adjust the benchmark interest rates, especially lending rate, down further.”
In its battle against China’s worst economic cooldown in more than six years, the central bank has cut interest rates five times since November last year and reduced banks’ reserve requirement ratios three times this year.
Despite the spate of easing, yesterday’s GDP reading was still the worst since the first quarter of 2009, when growth tumbled to 6.2 percent.
While Chinese officials put a brave face on China’s economic woes, describing the slowdown as “reasonable,” senior leaders have occasionally voiced worries.
Chinese President Xi Jinping (習近平) told Reuters in an interview over the weekend that the government has concerns about the economy and is working hard to address them.
Policymakers think they can stem a rapid rundown of the nation’s foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year’s growth target of about 7 percent, sources involved in policy discussions say.
However, key parts of the economy are still losing steam.
Factory output last month rose 5.7 percent year-on-year, missing forecasts for a 6 percent rise and fixed-asset investment climbed 10.3 percent in the first nine months, below estimates of 10.8 percent.
Last month’s retail spending alone bucked the trend, growing at an annual rate of 10.9 percent, slightly beating forecasts for 10.8 percent.
“The overall downturn pressure on the Chinese economy is still huge,” Commerzbank Singapore-based economist Zhou Hao (周浩) said.
The latest Reuters quarterly poll showed that by the end of the year economists expect the central bank to cut interest rates by another 25 basis points and lower the amount banks must hold as reserves by 50 basis points.
The same poll predicted economic growth of 6.8 percent in the fourth quarter, easing to 6.7 percent in the first quarter of next year.
China’s consumer inflation cooled more than expected last month, while producer prices extended their slide to a 43rd straight month, highlighting the urgency for the central bank to tackle deflationary pressures.
To shore up growth, the government has quickened spending on infrastructure and eased curbs on the ailing property sector. The latter measures have helped revive weak home sales and prices, but have not yet reversed a sharp decline in new construction.
Data released separately yesterday showed Chinese government spending surged almost 27 percent last month year-on-year.
Some market watchers believe current growth is much weaker than government figures, although officials deny allegations that the numbers are inflated.
Despite weak exports and imports, factory overcapacity and a cooling property market, Beijing reported annual economic growth of 7 percent in the first two quarters, in line with its full-year target.
However, some economists think the statistics might be underestimating strong consumption and service-sector growth, putting too much weight on the cyclical and structural weaknesses in manufacturing.
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