January 12, 2016 / 10:00 AM / in 2 years

China fourth-quarter GDP growth seen slowing to weakest pace since 2009

BEIJING (Reuters) - China is expected to post its weakest economic growth since the global financial crisis in the fourth quarter, adding pressure on policymakers to take more steps to ward off a sharper slowdown that could jolt global markets.

A labourer works atop a construction site of a commercial building as residential complexes are pictured in the background, in Kunming, Yunnan province, China, December 12, 2015. REUTERS/Wong Campion

A renewed plunge in China’s stock markets and the yuan CNY=CFXS have stoked concerns among global investors about the health of the world’s second-biggest economy, although analysts see few signs of an abrupt drop-off in activity.

Growth in fourth-quarter gross domestic product likely slowed to 6.8 percent from the same period last year, down from 6.9 percent in the third quarter, according to a Reuters poll of 50 economists.

That would be the weakest pace of expansion since the first quarter of 2009, when growth tumbled to 6.2 percent.

The highest forecast in the poll was 7.1 percent and the lowest was 5.3 percent, though some investors fear current growth levels could already be much weaker than the official data will suggest.

“The weaknesses in both domestic and external demand have exacerbated the deflationary pressures in the economy,” economists Qu Hongbin and Julia Wang at HSBC said in a note.

“Going into 2016, weak domestic as well as external demand will continue to weigh on growth.”

Economic growth for the full year is expected to have cooled to its slowest pace in 25 years of 6.9 percent in 2015 from 7.3 percent in 2014, a central bank work paper said recently.

Beijing’s growth target for 2015 was “around” 7 percent, with the government rejecting suggestions that the figures were being inflated to meet official forecasts.

FISCAL STIMULUS EYED

While the government is expected to lean more on fiscal policy to support growth this year, the central bank may still need to keep monetary policy accommodative to help cushion the impact of structural reforms on the economy.

Top leaders also pledged to push forward “supply-side reform” to help generate new growth engines, while tackling factory overcapacity and property inventories.

The government could widen this year’s budget deficit to about 3 percent, the biggest in perhaps half a century, as leaders turn to tax cuts and increased spending to support growth, policy advisers say, after disappointing returns from a year of monetary policy easing.

The government is expected to target economic growth of at least 6.5 percent in 2016 - in line with a new five-year plan to fulfill a previously announced goal of doubling GDP and per capita incomes by 2020 from 2010 levels, policy insiders say.

Analysts at Barclays expect the central bank to deliver two cuts in interest rates totaling 50 basis points and two cuts in bank reserve ratios totaling 100 basis points in the first half of 2016.

“We think the ‘supply-side reforms’ emphasized by the government are likely to slow investment and pose strong headwinds to growth, at least in the short term,” analysts at Barclays said in a note.

The central bank has already cut interest rates six times since November 2014, and reduced the amount of cash that banks must hold as reserves to spur activity.

Other support measures have included more government spending on infrastructure and easing down payment requirements and other curbs on the cooling property sector.

MONTHLY DATA

A raft of monthly indicators will be released with the GDP data on Jan. 19, and analysts will be looking for signs as to whether momentum is still fading or if the economy may be slowly stabilizing.

Factory output likely grew 6.0 percent in December from a year earlier, slightly down from November, as firms struggle to cope with persistent deflationary pressures due to overcapacity and softening demand.

Annual growth of fixed asset investment, a crucial driver of China’s economy, likely eased to 10.2 percent in 2015 - the weakest expansion in nearly 15 years.

Annual retail sales growth was seen at 11.3 percent in December, rising slightly from the previous month’s growth of 11.2.

The customs office is due to publish December trade figures on Wednesday. Exports were expected to have dropped 8 percent in December after sliding 6.8 percent in November and imports may have declined 11.5 percent in December from a year earlier, according to analysts polled by Reuters.

Reporting by Kevin Yao and Shaloo Shrivastava; Editing by Sam Holmes

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