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SLIDING ECONOMY

China factory output growth at 3-year low

Beijing, August 9, 2012

 

Annual growth in China's factory output slowed to its weakest in more than three years in July, missing market forecasts and increasing expectations that Beijing will take further policy steps to support an economy that has been sliding for six straight quarters.
 
Official data released on Thursday also showed China's annual consumer inflation fell to a 30-month low in July, suggesting that the central bank has ample scope to ease policy again after rate cuts in June and July to keep the economy on track to meet an official 2012 growth target of 7.5 percent.
 
China's economy faces powerful headwinds as the euro zone debt crisis and a sluggish U.S. recovery keep global growth at a low ebb, the main factor that pushed China's new export orders in July into their steepest fall in eight months.
 
"The government underestimated the pace of slowdown and there needs to be more aggressive stimulating policies," said Alistair Thornton, an economist at IHS Global Insight in Beijing.
 
"The government has signalled that it's taking a more aggressive line on stimulus measures ... But it's yet to feed into the real economy, which is why we are seeing such weak activities data for July."
 
Hopes of further easing from China boosted riskier assets, with Asian shares rising to a three-month high and the commodity-sensitive Australian dollar testing a 4-1/2-month peak.
 
China's industrial output growth slowed to 9.2 percent year-on-year in July, its weakest since May 2009, down from 9.5 percent in June and below the 9.8 percent forecast in a Reuters poll.
 
Annual growth in fixed-asset investment, in the likes of real estate, roads and bridges, came in at 20.4 in January-to-July, unchanged from the January-to-June period and just below the 20.5 percent forecast.
 
Growth of retail sales, the biggest driver of the economy's expansion in the first quarter, eased to 13.1 percent, short of the forecast of 13.7 percent.
 
Economic growth has been sliding since the beginning of 2011, reaching 7.6 percent in the second quarter, the weakest pace since the global financial crisis.
 
Analysts polled before the data had expected to see a pick-up in growth in the third quarter to 7.9 percent and full-year growth of 8 percent, above the official target.
 
The government is on track to ease policy to cushion the impact of the global downturn on the world's second-largest economy, but needs to tread cautiously to avoid reigniting property sector risks and fuelling renewed consumer price rises.
 
Annual consumer inflation eased to 1.8 percent in July from 2.2 percent in June, pulling back further from a three-year high last July of 6.5 percent, official data released on Thursday showed. Economists polled by Reuters had forecast inflation to ease to 1.7 percent in July.
 
"This number gives more room for policy easing," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.
 
"It is now pretty clear that CPI will likely be below the official 4 percent target for the year, so the policy focus for the government can stay clearly on growth."
 
Consumer prices edged up 0.1 percent in July from the previous month, compared to expectations of a 0.1 percent drop.
 
Still, there is little sign of inflationary pressures coming from factories. July's data showed that producer prices fell in July by 2.9 percent from a year earlier, a sharper decline than the 2.5 percent forecast and the steepest fall since October 2009.
 
It marked a fifth straight month of falling producer prices, reflecting the pressures eating into corporate earnings and capping capital spending.
 
President Hu Jintao and Premier Wen Jiabao have promised to step up policy "fine tuning" in the second half of the year to support the economy.
 
Apart from lowering interest rates, Beijing has also cut the amount of cash that banks must hold as reserves to free up an estimated 1.2 trillion yuan ($191 billion) for lending in a series of moves since November 2011.
 
Food prices rose 2.4 percent in July from a year earlier, cooling from 3.8 percent in June as pork prices tumbled 18.7 percent, while non-food inflation accelerated slightly to 1.5 percent in July from 1.4 percent in June.
 
Rising global food prices fuelled by a severe drought in the United States will have limited impact on Chinese inflation, but volatile food prices could be a cause for concern.
 
"Food price fluctuation could act as a drag on the further easing of China's consumer inflation in August. But non-food prices will continue to fall on slowing growth," said Li Wei, China economist at Standard Chartered Bank in Shanghai. - Reuters



Tags: economy | China | growth | factory |

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