China 2Q GDP growth may dip below 7%

Thursday, 14 June 2012 00:00 - - {{hitsCtrl.values.hits}}

BEIJING (Reuters): China’s annual economic growth could fall below 7 percent in the second quarter if weak activity persists in June, an influential government adviser was quoted on Wednesday as saying.

The forecast by Zheng Xinli, a former deputy director of the Chinese communist party’s policy research office, is among the most bearish by any government and private sector economists.

“GDP growth in the second quarter could fall below 7 percent if there is no significant improvements in economic data for June,” the overseas edition of the People’s Daily quoted Zheng Xinli, now deputy head of the China Center for International Economic Exchanges (CCIEE), a top government think-tank, as saying.

China’s industrial output growth usually outpaces GDP growth by 3-5 percentage points, the newspaper cited Zheng as saying.

China’s industrial output rose 9.6 percent in May from a year earlier, picking up slightly from a three-year low of 9.3 percent stuck in April.

Analysts forecast in a Reuters benchmark poll in May that China would deliver its weakest quarter of growth in three years in the second quarter at 7.9 percent, which would also mark the sixth straight quarter of slower growth. They forecast full year growth of 8.2 percent.

The same newspaper article quoted Jia Kang, head the Finance Ministry’s think-tank, as predicting China’s economic growth could bottom out in the second quarter.

“If everything goes smoothly, economic growth could hit a trough in the second quarter and, if the situation is worse, that may happen in the third quarter,” Jia was quoted as saying.

The government is due to publish second-half economic indicators in mid-July.

The government has been stepping up policy steps to combat the slowdown, cutting interest rates last week for the first time since the depths of 2008/09 global crisis while fast tracking infrastructure and industrial investment projects.

But the government cannot make a fundamental policy shift and relax its curbs on the property sector, although it needs to step up policy fine-tuning to support the economy, Jia said.

A flurry of data over the weekend explained China’s surprise cut in interest rates by showing the extent of the domestic economy’s weakness.

Inflation, industrial output and retail sales all flagged in May for a second straight month of sluggish growth, but exports and imports were much better than forecast as stronger U.S. demand helped offset weakness in Europe stemming from the region’s debt crisis.

Still, the trade situation is relatively grim, the official Xinhua news agency on Monday quoted Commerce Minister Chen Deming as saying.

“If lucky, we will be able to keep annual growth of around 10 percent,” he said, referring to exports and imports.