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China’s growth weakest in 27 years

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Analysts expect more stimulus from Beijing in coming months

BEIJING China's economic growth slowed to 6.2 per cent in the second quarter, its weakest pace in at least 27 years.

While more upbeat June factory output and retail sales offered signs of improvement, some analysts cautioned the gains may not be sustainable. They expect Beijing will continue to roll out more support measures in the coming months.

China's trading partners and financial markets are closely watching its health as the Sino-US trade war gets longer and costlier, fuelling worries of a global recession.

The April to June pace was in line with analysts' expectations for the slowest since the first quarter of 1992, the earliest quarterly data on record.

"China's growth could slow to 6 per cent to 6.1 per cent in the second half," said Mr Nie Wen, an economist at Hwabao Trust.

That would test the lower end of Beijing's 2019 target range of 6 per cent to 6.5 per cent.

Cutting banks' reserve requirement ratios "is still likely as the authorities want to support the real economy in (the) long run, " he said, predicting the economy would continue to slow before stabilising around mid-2020.

China has already slashed the reserve requirement ratios six times since early last year to free up more funds for lending, and analysts polled by Reuters forecast two more cuts this quarter and next.

Beijing has leaned largely on fiscal stimulus to underpin growth this year, announcing massive tax cuts worth nearly 2 trillion yuan (S$395 billion) for businesses.

The economy has been slow to respond, however, and business sentiment remains wary.

Trade pressures have intensified since Washington sharply hiked tariffs on Chinese goods in May. While the two sides have since agreed to resume trade talks and hold off on further punitive action, they remain at odds over significant issues needed for an agreement.


Data on Friday showed China's exports fell in June and its imports shrank more than expected, while an official survey showed factories were shedding jobs at the fastest pace since the global crisis.

Premier Li Keqiang said this month that China will make timely use of cuts in banks' reserve ratios and other financing tools to support smaller firms, while repeating a vow not to use "flood-like" stimulus.

A steady string of weak economic data in recent months and the sudden escalation in the US-China trade war had sparked questions over whether more forceful easing may be needed to get the Chinese economy back on steadier footing.

But the June activity data yesterday showed industrial production, retail sales and fixed-asset investment all beat analysts' forecasts, suggesting that Beijing's earlier growth-boosting efforts may be starting to have an effect.

Analysts also said room for more aggressive monetary policy easing is being limited by fears of adding to high debt levels and structural risks.

"Cutting the benchmark deposit and lending rates - the likelihood is low. It is more possible (that) they twist the market-oriented rates - cutting the interest rates of all those liquidity facilities also sends an important signal to the market," said Mr Aidan Yao, senior Asia emerging markets economist at AXA Investment Managers.

Industrial output climbed 6.3 per cent from a year earlier, data from the National Bureau of Statistics showed, picking up from May's 17-year low.

Daily output for crude steel and aluminium both rose to record levels.

Retail sales jumped 9.8 per cent - the fastest since March last year - and confounding expectations for a pullback to 8.3 per cent. Gains were led by a 17.2 per cent surge in car sales.

Some analysts, however, questioned the apparent recovery in both output and sales.

"The monthly data were better than expected... (But) we are sceptical of this apparent recovery given broader evidence of weakness in factory activity," said Mr Julian Evans-Pritchard, senior China economist at Capital Economics.

"We doubt that the data for June will mark the start of a turnaround." -- REUTERS