• Sun
  • Dec 28, 2014
  • Updated: 4:12pm

Pressure for more stimulus measures

PUBLISHED : Sunday, 10 June, 2012, 12:00am
UPDATED : Sunday, 10 June, 2012, 12:00am

Slowing inflation and disappointing industrial output and retail sales growth last month offered fresh evidence that demand on the mainland is dropping - and put pressure on policymakers for further monetary easing and economic stimulus.

The consumer price index rose 3 per cent from a year ago in May, a 23-month low, while the producer price index was down 1.4 per cent, data released by the National Bureau of Statistics yesterday shows. Retail sales rose 13.8 per cent from a year ago, against 14.1 per cent in April.

Industrial production, which represents two-fifths of the economy, rose 9.6 per cent year on year - more than in April but below the 9.8 per cent economists expected.

The continuing sluggishness of the world's second-biggest economy will add to concerns about global growth, as a Greek exit from the euro zone looms, Spain bows to the need for help to bail out its banks and jobs growth in America weakens.

'The mainland economy did not slide further from April, but remains weak,' said Qu Hongbin, an economist at HSBC. 'With policies to stabilise the economy starting to show effect, the economy will bottom out from the third quarter and rebound to 8.5 per cent in the second half.'

Beijing has twice this year lowered the reserve requirement ratio for banks - the fund banks must have available to make loans - to put cash into the economy, and last week cut interest rates for the first time in four years. Economists expect further reductions in both.

Beijing has also quickened approvals for infrastructure investment. Fixed-asset investment grew 20.1 per cent year on year from January to May, the slowest pace since 2001. Still, Lu Ting, an economist at Bank of America Merrill Lynch, said fixed-asset investment held up well, suggesting Beijing was ramping up investment in infrastructure and social housing to bolster the economy.

Inflation has eased from a three-year high of 6.5 per cent in July, enabling policymakers to change their focus to stabilising economic growth. Between January and March the economy grew 8.1 per cent, a three-year low. The government's target for this year is 7.5 per cent.

David Lipton, first deputy managing director of the International Monetary Fund, said economic growth would probably moderate to 8 per cent this year.

Lu said: 'The data confirms a softening in inflation, which will provide more room for further policy stimulus.'

Customs data today may show May exports and imports grew by less than the government's 10 per cent target for the year.

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