GDP growth falls on weak demand

PUBLISHED : Saturday, 14 July, 2012, 12:00am
UPDATED : Saturday, 14 July, 2012, 12:00am


The mainland's economic growth dipped below 8 per cent in the second quarter, the weakest quarterly performance in three years, adding more pressure on the government to stimulate demand.

Gross domestic product (GDP) expanded 7.6 per cent from a year ago in the April to June period, the National Bureau of Statistics said yesterday. The data came in weaker than the 7.7 per cent expected and marked a slowdown from the 8.1 per cent growth in the first quarter of this year.

However, many economists still forecast the world's second-largest economy will bottom out soon, as more loosening measures to facilitate investment kick in.

Reaction on regional stock markets was muted, with most rising modestly yesterday. The Shanghai Composite Index edged up 0.02 per cent and the Hang Seng Index climbed 0.35 per cent.

The economy has bottomed and 'should rebound strongly in the second half on stimulus policies', said Daiwa Securities economist Sun Chi. 'We maintain our 8.3 per cent GDP growth forecast for the full year.'

Sheng Laiyun, spokesman of the statistics bureau, said the economy was stable and noted that the 7.8 per cent GDP growth for the first half was still higher than the 7.5 per cent government target for the full year.

The second-quarter slowdown was the result of the 'worsening international situation', which hampered external demand and the 'weakening domestic demand' caused by curbs on the property market, Sheng said.

Quarter-on-quarter, the economy expanded 1.8 per cent over the three months, improving from the 1.6 per cent gain in the first quarter.

June data was mixed. Industrial output grew 9.5 per cent year on year, down from 9.6 per cent for May, indicating de-stocking is going on.

Growth in fixed-asset investment quickened to 20.4 per cent year on year in the first half from 20.1 per cent in the first five months. Electricity production last month was unchanged from a year ago. Retail sales, not adjusted for inflation, grew 13.7 per cent from the year-earlier period, down from the 13.8 per cent increase recorded in May, but the growth in real terms jumped to 12.1 per cent in June, as inflation eased, from 11 per cent in May.

'The economy continued to show sluggish growth momentum in the second quarter, but the June data seem to give some signs of stabilisation in demand conditions,' said Zhu Haibin, an economist at JPMorgan Chase Bank. 'The economic indicators will begin to improve meaningfully from August onwards thanks to more policy loosening and stimulus measures and potential re-stocking activities.'

More cuts in interest rates as well as to the reserve ratio requirement (RRR) - the proportion of assets banks must hold back when lending - are expected soon. The central bank recently cut interest rates twice in a month - the first cuts since 2008 - to lower borrowing costs and has reduced the RRR three times since November to free up liquidity for loans.


Daiwa Securities' full-year growth forecast for the mainland, despite second quarter GDP growth of 7.6 per cent