Growth slows, but a crash is less likely

PUBLISHED : Wednesday, 18 January, 2012, 12:00am
UPDATED : Wednesday, 18 January, 2012, 12:00am


The mainland's gross domestic product (GDP) growth fell to a two-and-a-half year low in the three months to December as efforts to tame inflation and declining export demand put the brakes on the world's second-biggest economy.

Even so, GDP grew 8.9 per cent, beating market expectations and suggesting the economy is heading for a soft landing.

The median forecast of economists polled by Dow Jones Newswires was for 8.6 per cent growth.

Full-year GDP growth slowed to 9.2 per cent, from 10.4 per cent in 2010, according to data released yesterday by the National Bureau of Statistics (NBS).

The data should help ease fears that the pace of economic growth is slowing too rapidly.

GDP growth slowed to 9.1 per cent in the three months to September, from 9.5 per cent in the three months to June and 9.7 per cent in the first quarter, prompting some economists to warn of the risk of a hard landing.

Despite the evidence of slowing growth, Ma Jiantang, commissioner of the NBS, said the economy 'kept moving towards the expected direction of macroeconomic control' and that last year's economic performance marked a 'good start' to the 12th five-year plan for 2011 to 2015.

'The fundamentals for the mainland's stable, relatively fast economic growth in the medium to long term haven't changed,' Ma said.

'For the economy in 2012, we should still be full of confidence.'

The stronger-than-expected economic results helped cheer investors yesterday.

In Hong Kong, the benchmark Hang Seng Index rose 3.24 per cent, or 615.55 points, to close at 19,627.75 - its best finish since November 9.

In Shanghai, the benchmark index gained 4.2 per cent, or 92.18 points, to end at 2298.38 - snapping a four-day losing streak.

In Shenzhen, the benchmark index climbed 5.14 per cent, or 42.07 points, to close at 860.25.

Analysts say the surprisingly strong GDP numbers probably reduce the odds of any major monetary easing in the near term.

'It is justified to say the number represents a measured slowdown, and hence a step towards a soft landing for the mainland's economy,' said Liao Qun, chief economist at Citic Bank International.

Nevertheless, economists generally expect growth to continue to slow, given the bleak global outlook.

While saying the latest data showed economic growth remained high, even by domestic standards, Liao said growth was expected to continue slowing in the first half of this year, particularly in the first quarter.

That's due to the delayed impact of global economic weakness and domestic monetary tightening.

'Against this backdrop, although an immediate easing of monetary policy is not expected, monetary easing is set to occur this year,' Liao said. He expects three or four announcements of cuts in banks' reserve requirement ratio - the proportion of assets lenders must hold as a buffer - and one or two cuts in interest rates this year.

Qu Hongbin, chief economist with HSBC, said the economic slowdown had yet to stabilise.

'Where GDP growth is concerned, we expect things to get worse before they get better,' Qu said. He forecasts the economic slowdown will bring GDP growth of about 8 per cent in the first quarter.

Bank of America Merrill Lynch economist Lu Ting forecast economic growth to slow to 8.6 per cent this year, with quarterly growth rates of between 8.3 and 8.8 per cent.

Industrial output in December rose unexpectedly rapidly to 12.8 per cent from a year ago, ahead of the 12.4 per cent pace in November.

Retail sales were up 18.1 per cent from a year earlier, compared with growth of 17.3 per cent in November.

Urban fixed-asset investment rose 23.8 per cent for the whole of last year, down from the 24.5 per cent pace set in the first 11 months.