M2, output growth slows amid worsening economy

PUBLISHED : Tuesday, 16 December, 2008, 12:00am
UPDATED : Tuesday, 16 December, 2008, 12:00am

IMF may cut mainland GDP outlook next year to about 5pc

In twin signs that the mainland's economic downturn has worsened, factory output grew last month at 5.4 per cent, its most anaemic pace in more than a decade, and money supply growth cooled as well.

Next year may hold more of the same. The International Monetary Fund said yesterday it might cut its forecast for mainland economic growth next year to about 5 per cent at its next revision as the world economy suffered an 'unprecedented decline', according to managing director Dominique Strauss-Kahn.

Meanwhile, World Bank president Robert Zoellick warned that the world economic slowdown and financial crisis were spurring protectionist measures, which could seriously affect the mainland and cause higher global unemployment.

The National Bureau of Statistics said yesterday industrial production growth, excluding holiday-related distortions, slowed to 5.4 per cent from 8.2 per cent in October and 11.4 per cent in September.

The pace of growth, the lowest since the government started keeping data in 1994, was 11.9 percentage points lower than a year earlier.

'Five per cent gross domestic product growth in the first half next year is now a reality, not a risk,' said Ben Simpfendorfer, a regional economist with Royal Bank of Scotland. 'There's little doubt the data will look ugly over the next six months.'

In a separate report, the People's Bank of China yesterday said the annual growth of M2, a money supply measure of cash and all deposits, eased to 14.8 per cent last month from 15 per cent in October. The M2 growth target is 17 per cent next year.

Despite slowing monetary growth, the central bank said mainland banks lent 476.9 billion yuan (HK$539.52 billion) last month, higher than the 182 billion yuan extended in October, and a fivefold increase over a year ago. At the end of last month, outstanding yuan loans stood at 29.57 trillion yuan, up 16.03 per cent year on year.

'This is the first sign of an aggressive response of bank lending to the removal of loan quotas, cuts in interest rates and deposit reserve requirement ratios and the aggressive stimulus package,' said Morgan Stanley economist Wang Qing.

Still, there were other indications that the country's economy had weakened. The profits of state enterprises slumped 26 per cent to 683.04 billion yuan in the first 11 months of the year, the State-owned Assets Supervision and Administration Commission revealed yesterday. It was the first decline since 2002. The drop came despite revenue rising 20 per cent to 10.76 trillion yuan in the 11-month period.

And a key indicator shows power consumption dropped 8.6 per cent year on year to 256.24 billion kilowatt-hours last month. The decline was led by a 13.85 per cent slump in demand from the industrial sector to 188.66 billion kWh, according to figures released by China Electricity Council and calculations by the South China Morning Post.

The total output of the power industry fell 7.42 per cent year on year to 258.8 billion kWh last month, highlighting the impact of production cuts and shutdowns by electricity-intensive sectors such as aluminium, steel and cement.

A breakdown of the industrial production figures shows most key industries saw sharp declines. Electricity generation dipped 9.6 per cent, vehicle output declined 15.9 per cent, and raw steel output fell 12.4 per cent.

Year-to-date figures show industrial output rose 13.7 per cent, down from 18.5 per cent during the same period last year.

These, along with November data last week showing the first decline in exports and fiscal revenue in many years, all point to a sharp slowdown in gross domestic product growth.

Ha Jiming, the chief economist at China International Capital Corp, said he was reducing his fourth-quarter GDP growth forecast to 5 to 5.5 per cent, from 6.3 to 7.5 per cent. He expected the economy to expand 7.3 per cent next year.

Xu Xianchun, the statistics bureau's deputy head, said: 'Data shows that China's economy has witnessed a decline in growth for five straight quarters since the third quarter of 2007, dropping 0.7 percentage points on average in a quarter.'

He said the sharp decline was a concern and the government was taking measures to shorten the downturn and intended to maintain steady and rapid economic growth.