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China Government Adviser Predicts 2Q2012 Growth Below 7 Per cent

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China’s annual economic growth could drop below 7 per cent in the second quarter, an influential government adviser said in published remarks on Wednesday, the most pessimistic forecast of any government or private-sector economist.

Sub-7 per cent growth would reflect the pace of the economy during the global financial crisis. China reported economic growth of just 6.6 per cent in the first quarter of 2009.

A sharpening slowdown in the world’s second-biggest economy galvanised policymakers last week into cutting interest rates for the first time since the global financial crisis – their boldest move yet to try to revive an economy facing its sixth straight quarterly slowdown.

“GDP growth in the second quarter could fall below 7 per cent if there is no significant improvements in economic data for June,” said Zheng Xinli, deputy head of the China Center for International Economic Exchanges (CCIEE) – a government think-tank in Beijing.

His comments were carried in the overseas edition of the People’s Daily, the main newspaper of the ruling Communist Party. Zheng is also vice head of the economic committee of the Chinese People’s Political Consultative Conference (CPPCC), which advises China’s parliament.

Zheng said year-on-year industrial output growth usually outpaces GDP growth by 3-5 percentage points. Industrial output rose 9.3 per cent in April, the weakest pace in three years, and increased 9.6 per cent in May.

So unless activity picks up in June, second-quarter GDP growth could be below 7 per cent, Zheng argued.

Government and private-sector economists have gradually cut their forecasts for China’s economy this year. Many had predicted the low point of China’s slowdown would be in the first quarter, but they now expect it in the second quarter.

Analysts forecast in a Reuters benchmark poll in May that China would deliver second-quarter economic growth of 7.9 per cent. They forecast full-year growth of 8.2 per cent.

Since then, data for the month of May has suggested little pick up in the domestic economy and the central bank has cut rates by 25 basis points, underlining policymakers’ concern.

Inflation hit a two-year low in May, retail sales rose at their weakest pace since February 2011 and fixed asset investment growth was the lowest in nearly a decade.

But exports and imports were stronger than forecast as US demand helped offset weakness in Europe stemming from the region’s debt crisis.

Zhu Baoliang, chief economist at State Information Centre, another top government think-tank, forecast second-quarter growth of 7.5 per cent, cutting his earlier prediction of 7.8 per cent. He expects the second quarter to be the bottom of the down cycle.

Peng Wensheng, chief economist at China International Capital Corp (CICC), the country’s top investment bank, has cut his outlook on second-quarter growth to 7.3 per cent from 7.8 per cent.

“Policy loosening usually needs one to two quarters to impact the real economy, so we believe the loosening could show results in the third quarter,” Peng said in a note to clients.

Data on the economy in June and the second quarter as a whole is due to be published in mid-July.

Despite the slide, most economists doubt China is heading for a hard landing, usually defined in a Chinese context as an abrupt fall in quarterly growth below 7-8 per cent with big job losses, which could pose a threat to social stability.

“A hard landing is unlikely as there are no big employment problems that could lead to social unrest,” Zhu said.

(Source: Reuters)