April 9, 2015 / 8:40 AM / 2 years ago

China's first-quarter economic growth seen at six-year low of 7 percent

4 Min Read

Apartment blocks (R) are seen at sunset in Beijing, April 7, 2015.Jason Lee

BEIJING (Reuters) - China's economy probably cooled further to grow 7 percent in the first three months of the year, a Reuters poll showed, which would be the weakest pace in six years and raise pressure on policymakers to do more to bolster growth.

A poll of at least 16 analysts showed activity from trade to investment in the world's second-biggest economy likely remained around multi-year lows in March. That would increase the chance that China will post its slowest growth in 25 years this year.

The deluge of data over the coming week, starting with inflation on Friday and culminating with gross domestic product (GDP) data on April 15, will almost certainly revive speculation about when and how China will next ease monetary policy.

China has lowered interest rates and relaxed banks' reserve requirements in the last three months as activity has slowly deteriorated. Investors widely expect it to loosen policy on both fronts again in coming months, if not coming weeks, to shore up flagging growth.

"They probably have to do a little bit more, a little bit sooner," said Kevin Lai, an economist at Daiwa Securities in Hong Kong, who predicts first-quarter growth of 7.1 percent.

He said Chinese policymakers would likely be alarmed if the economy slowed to around 6.8 percent annual growth in the first three months, a level that's half a percentage point lower than fourth-quarter growth.

The pace of such a cooldown would be "too drastic, too rapid", Lai said, and would argue for policymakers to act more quickly to smooth fluctuations in growth.

Friday's inflation data could offer clues on how worried policymakers should be.

Hurt by a property downturn and lackluster foreign and domestic demand, China has fought intensifying deflationary pressure in recent months, a trend that senior leaders say is a key threat to growth. A sharp falloff in consumer prices in March would be bound to unsettle the government.

The median forecast of 29 analysts showed China's consumer inflation is expected to cool a shade to 1.3 percent in March on a yearly basis, from February's 1.4 percent. That is within sight of the 1 percent level that officials have said is a warning "red-line" for deflation.

And producer deflation, which has persisted in China since early 2012, is not expected to have eased last month. Producer prices are forecast to be down 4.8 percent in March on an annual basis, the same as in February.

Unabated Pressure on Growth

Yet even a better-than-expected inflation report would not dispel fears about the softening economy.

Annual export growth is forecast to fall to 12 percent in March from February's 48 percent surge, which was believed to be inflated by the timing of the Lunar New Year holiday.

Import growth, which has slowed on China's ailing economy and falling global commodity prices, is seen to have slid 11.7 percent year-on-year last month, compared with February's 20.5 percent contraction.

Factory output growth, which slumped to its lowest in over six years in the first two months of the year, is forecast to be little changed at 6.9 percent compared to the same month last year.

Annual growth in fixed asset investment, a crucial driver of China's economy, is also seen to be virtually unchanged at 13.8 percent from February's 13.9 percent, the worst performance since 2001.

Growth in the broad M2 money supply - which hit a record low of 10.8 percent in January - is predicted to be largely steady at 12.3 percent in March compared with a year ago.

"Judging by the power generation and capacity utilization data, up until the end of March, economic growth continued to lose momentum," analysts at Everbright Securities said in a note, adding that they expect first-quarter GDP growth to fall to 7 percent.

Quarterly GDP growth of 7 percent would be the worst outcome in China since January-March 2009, but in line with the government's plan to expand the economy by 7 percent this year.

Additional reporting by Chen Yixin; Editing by Richard Borsuk

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