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Manufacturing output expected to be subdued

Weak demand likely restrained investment and factory growth last month, analysts say

PUBLISHED : Saturday, 08 June, 2013, 3:00am
UPDATED : Saturday, 08 June, 2013, 3:39am

Growth in mainland investment and factory output probably remained listless in May on soft domestic demand, a Reuters poll showed, heightening risks that the Chinese economy may cool further in the second quarter.

Those hoping for  exports and imports to be a bright spot are likely to be disappointed, too, as a sharp loss of momentum is expected, though analysts expect the slump will be exaggerated by what was suspected to be an artificially strong trade performance in April.

Dismal readings from the latest batch of Chinese data in coming days would further bruise market confidence in the world’s second-biggest economy, where expectations are mounting that  growth in 2013 could slide further from last year’s 13-year trough.

“The key driver of growth is domestic demand and investment,” said Zhang Zhiwei, an economist at Nomura. “If industrial production continues to slow, it would point to a further slowdown in the second quarter.”

Zhang expects growth in the world’s second-biggest economy to decelerate to 7.5 per cent between April and June, from 7.7 per cent in the first quarter.

A Reuters poll of 20 analysts showed growth in fixed-asset investment, one of  two main drivers of the mainland  economy last year,  likely rose 20.5 per cent in the first five months of this year compared to the  period last year.

That is equivalent to investment rising 20.2 per cent in May from a year ago, Reuters’ calculation showed, the slackest pace in at least three months, and a level last seen in August, excluding January and February when monthly data was unavailable.

Industrial output is forecast to have risen 9.3 per cent in May from a year ago, unchanged from April’s growth rate.

A pair of manufacturing surveys released earlier this month suggested big factories are faring better than their smaller peers, which are mired in their worst slowdown in seven months, but not by much.

Barclays, which plans to review its 7.9 per cent forecast for China’s 2013 economic growth after the May data deluge, said mixed results from the pair of factory surveys make it difficult to gauge the strength of the Chinese economy right now.

“But it is probably fair to say that growth momentum remains soft amid domestic overcapacity, external weakness, uncertain domestic policy and a lack of new stimulus,” Barclays said.

Growth in retail sales is forecast to edge up to 12.9 per cent in May from April’s 12.8 per cent, a three-month high but below last year’s monthly average expansion of 14.2 per cent.

May exports are forecast to have climbed 7.3 per cent compared to a year earlier, halving from April’s 14.7 per cent growth. Imports are expected to have risen 6 per cent in May, about a third of the growth seen in April.

While global demand remains weak, with the euro zone mired in recession, many economists believe comparisons with April may be distorted. China’s strong trade numbers in April were suspected of being inflated by speculative inflows disguised as false trade payments.

China’s trade sector is a mainstay provider of jobs and a crucial influence of domestic consumer mood, but its contribution to economic growth has been unsteady in recent years.


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