China will release first quarter economic results next week and investors are expecting to be disappointed. Double digit growth is officially behind us.
China’s GDP growth may have slowed to about 8.4% year-on-year in the first quarter, Zhang Xiaoqiang, deputy director of the National Development and Reform Commission, told the local press on Tuesday.
The National Bureau of Statistics will announce the quarter’s GDP on April 13.
“First quarter GDP might come in weaker than expected,” says Edmund Harriss, a portfolio manager at Guinness Atkinson in London. “External factors were slow at the end of the year and into the start of 2012 and we have not seen the domestic economy able to pick up the slack.”
According to a monthly survey of fund managers conducted by Merrill Lynch, investors consider growth at or below 7% a hard landing for the Chinese economy.
Beijing will cut its 2012 growth target to an eight-year low of 7.5% next week and hold the core inflation target at around 4%.
Despite the slowdown, China’s major economic indicators are still at reasonable levels. China’s services sector expanded solidly in March and business confidence hit an 11-month high, according to this week’s HSBC Services Purchasing Managers Index (PMI). The survey index came in at 53.3 in March, down slightly from February’s 53.9, but still above the 50 mark for over three years.
On Thursday, Barclays Capital analysts from Hong Kong said in a research note to clients that they expected real GDP growth to slow to 8.4% in the first quarter, same number as Beijing’s.
“Economic activity likely moderated further in March, and we forecast CPI inflation edged higher to 3.3%,” the three analysts wrote. “The latest developments are in line with our forecast, and we maintain our policy outlook,” they wrote.
Overall, by preparing for disappointment, investors might end up being pleasantly surprised with the fact that a soft landing is in place, rather than a hard one. Industrial growth will edge down to 11.3% from 11.4% in January-February. Fixed asset investment growth will likely slow given the ongoing housing market correction and slip to 20.6% year over year from 21.5% in January-February. March retail sales growth to remain soft at the January-February level of 14.7% year over year, as well. Lastly, export growth will likely slow to around 6% from January-February’s 7%, with Barclays forecasting import growth to rise to 9%, as suggested by the recent trend in the PMI export orders and import indices.
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