China Q4 GDP growth may slow to 7.2%, weakest since Q1 2009

• 2014 full-year pace seen as lowest in 24 years

Reuters: China’s annual economic growth likely slowed to 7.2% in the fourth quarter, the weakest since the depths of the global crisis, a Reuters poll showed, which would keep pressure on policymakers to head off a sharper slowdown this year. The expected slowdown in growth of the world’s second-largest economy, from 7.3% in the June-September quarter, means full-year would undershoot the government’s 7.5% target and mark the weakest expansion in 24 years. Growth of 7.2% in October-December would be the weakest since Q1 2009, when the economy grew 6.6% as the worst of the global crisis passed. Fourth-quarter GDP data will be announced on 20 January. The poll of 31 economists showed bank lending, fixed-asset investment and factory output growth may have steadied in December, but factory price deflation likely worsened and consumer price inflation hovered near five-year lows. “We expect the upcoming December data to show a still frail economy, tepid production momentum, and mounting deflationary pressures,” economists at UBS wrote in a note. Banks may have extended nearly 853 billion yuan ($ 137.3 billion) in new loans in December, flat from November’s level, which showed a 56% jump from the previous month. The People’s Bank of China (PBOC) unexpectedly cut interest rates in November for the first time in more than two years to lower borrowing costs to support growth. Later, it loosened loan restrictions to encourage banks to step up lending. In the poll, M2 money supply is seen growing 12.5% in December from a year earlier, up from November’s 12.3% rise. Fixed-asset investment, a key growth driver, probably grew 15.8% in the whole of 2014, matching the pace in the first 11 months as the government approves more investment projects to offset the impact from a cooling property market. The National Development and Reform Commission, the nation’s top planning agency, approved infrastructure projects with total investment value of 1.77 trillion yuan in 2014, with the bulk in the fourth quarter, according to Reuters calculations based on NDRC announcements. But analysts say it could take quite some time before construction of planned railways, roads and other projects starts as local governments are burdened by piles of debt. December factory output likely grew 7.4% from a year earlier, quickening slightly from 7.2% in November, when many polluting factories in north China were shut for a meeting of Asia-Pacific leaders in Beijing. The PBOC is widely expected to cut interest rates further or lower reserve requirement ratios (RRR) for all banks, although some analysts believe it may be pausing on policy easing to wait for recent actions to take effect and lift growth. “The Central Bank needs time to observe economic operations before taking further easing measures, so the possibility of a near-term cut in interest rates or RRR is not big,” Lin Hu, an economist in Beijing for Guosen Securities said in a note. China’s reform-minded leaders have shown greater tolerance for slower growth, but further slowdown in the economy could fuel job losses and undermine public support for changes. A property slump is expected to last well into 2015, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving the services sector as the economy’s lone bright spot. UBS expects China’s GDP growth to slow further to 6.8% in 2015, and rising deflationary pressure will spur the central bank to cut benchmark lending rates by at least 50 basis points this year. Highlighting deflationary risks, producer prices may have fallen 3.1% in December from a year earlier. That would extend to 34 months a streak of declines that has eroded corporate earnings. November saw a 2.7% slide. Annual consumer inflation likely hovered near five-year lows, at 1.5%, in December, leaving some room for the central bank to loosen policy if needed. Reflecting lacklustre domestic demand, China’s imports may have declined 7.4% in December from a year earlier, following a 6.7% drop in November. Export growth likely accelerated to 6.8% in December from 4.7% in November. The December trade surplus could be around $ 50 billion, near record highs.Retail sales, a key gauge of domestic consumption, were seen expanding 11.7% in December from a year earlier, steady from November, according to the poll.