Weak demand hits China factory, services firms in March, more easing seen

Wed Apr 1, 2015 1:23am EDT
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By Koh Gui Qing and Pete Sweeney

BEIJING/SHANGHAI (Reuters) - Surveys of China's factory and services sectors showed stubborn weakness in the world's second-biggest economy in March, adding to bets that Beijing will have to roll out more policy support to avert a sharper slowdown.

Three separate surveys showed Chinese companies shed jobs last month as they struggled with soft demand and deflationary pressures, suggesting that economic growth may have slipped below 7 percent in the first quarter of 2015, which would be the weakest in six years.

"We expect first-quarter growth to drop to 6.8 percent and the government might start easing policies significantly in the second quarter," said Zhang Zhiwei, an economist at Deutsche Bank in Hong Kong, adding that the central bank may relax banks' reserve requirement ratio (RRR) as early as this week or next.

"Growth faces headwinds from the property slowdown and a fiscal slide," said Zhang, referring to a fall-off in government revenues that many worry could further dampen economic growth by crimping investment.

Many economists also see further interest rate cuts later this year and additional measures to help the weakest sectors such as the housing market. Regulators on Monday cut downpayment requirements for home buyers for the second time in six months.

The last time China reduced the amount of deposits that banks must hold as reserves was on Feb. 4, three days after an official survey of the factory sector showed activity unexpectedly shrank to a 2-1/2-year low.

The official Purchasing Managers' Index (PMI) released on Wednesday was not as dire, but indicated that activity was tepid at best.

It edged up to 50.1 in March from February's 49.9, the National Bureau of Statistics said, stronger than a Reuters poll forecast of 49.7, but barely above the 50-point level that separates an expansion in activity from a contraction.   Continued...

Employees work at a steel factory in Dalian, Liaoning province in this March 16, 2015 file picture.  REUTERS/China Daily/Files