Chinese GDP to worry central banks at home and abroad

Fri Jan 15, 2016 9:37am EST
 
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By Balazs Koranyi

FRANKFURT (Reuters) - China is set to report its weakest full-year growth figure in 25 years on Tuesday on the back of slowing output and sagging investments, troubling news that will likely dominate discussion at the European Central Bank and Bank of Canada policy meetings.

Economists said the expansion of the Chinese economy was held back by sluggish domestic and external demand, weak investments, factory overcapacity and high property inventories, which exacerbated deflationary pressures in the economy.

The poor figures bolster arguments for more Chinese monetary policy easing on top of the six interest rates cuts seen since November 2014 and suggest that more currency depreciation is coming to prop up corporate profitability, bad news for advanced economies.

An even weaker yuan will export China's deflationary pressures to advanced economies that are already struggling with anemic price growth, amplified by a fall in oil prices to 12-year lows.

China's annual fourth-quarter GDP likely slowed to 6.8 percent from 6.9 percent in the third quarter, the weakest reading since the global financial crisis, while full-year growth is seen at a 25-year low of 6.9 percent.

"The Chinese yuan has been caught up in a vicious circle than can but lead to further depreciation of the currency," Nordine Naam, an analyst at brokerage Natixis, said.

"Concerns over the extent of the slowdown in Chinese growth risk fuelling capital outflows and in turn a further depreciation of yuan, to which the People's Bank of China seems resigned," Naam said.

The Chinese government is expected to target economic growth of at least 6.5 percent in 2016, but that could require more rate cuts, increased government spending on infrastructure and easing curbs on the cooling property sector.   Continued...

 
Labourers work on top of a construction site in Jinning, Yunnan province, China, October 20, 2015. REUTERS/Wong Campion