Factory output growth weakest in three years

The mainland's industrial output growth cooled the most in more than three years last month, a further sign that Beijing will have to prepare more aggressive measures to counter a worse-than-expected economic slowdown.

Industrial growth - an important barometer of gross domestic product - slowed to 9.2 per cent year on year last month from 9.5 per cent in June, the National Bureau of Statistics said yesterday.

The data, which was worse than the widely expected 9.7 per cent expansion, prompted economists to review their GDP growth predictions. Barclays Capital lowered its forecast for economic growth this year from 8.1 per cent to 7.9 per cent.

'We continue to expect growth to show a modest and gradual recovery in the second half, but also believe more policy support in the third quarter is necessary to ensure an 8 per cent growth this year,' the Barclays economists said in a research note. Last month, steel output rose 6.5 per cent from a year ago, cement was up 6.1 per cent, non-ferrous metals climbed 4.1 per cent, cars increased 12.3 per cent and electricity gained 2.1 per cent.

Other July data released yesterday suggested there was no turnaround in sight for the world's second-largest economy, despite the leadership's focus on boosting growth.

Fixed-asset investment growth remained flat and retail sales growth slowed in nominal terms.

Consumer inflation cooled to a 30-month low in July, providing further room for policy easing. The consumer price index (CPI) rose 1.8 per cent last month from a year ago - the slowest in 30 months. And the producer price index (PPI) fell 2.9 per cent from a year ago in July, continuing a downward trend since March, according to the statistics bureau.

The Shanghai Composite Index rose 0.61 per cent yesterday, while the Hang Seng Index gained 1.02 per cent, amid mounting expectations Beijing will bring in more policy easing measures to spur the economy.

HSBC China economist Qu Hongbin said he expected Beijing to cut interest rates by 25 basis points in the next few weeks, lower banks' reserve ratios by 200 basis points in the next two quarters, and cut taxes and boost infrastructure investment for the rest of the year.

Shen Jianguang, an economist at Mizuho Securities, said economic activity continued to disappoint in July. 'Fixed-asset investment, industrial output and retail sales are below our expectations and indicate that the government stimulus so far is still insufficient to counter the economic downturn,' Shen said. 'Going forward, we believe more aggressive policy action will be necessary to put the economy back on track.'

Fixed-asset investment in the first seven months grew 20.4 per cent from a year ago, unchanged from the first half of this year, with rising infrastructure investment offsetting slowing property investment.

Retail sales growth slowed from 13.7 per cent year on year in June to 13.1 per cent in July in nominal terms. After factoring in inflation, the growth was 12.2 per cent in July, faster than the 12.1 per cent in June.

Lu Ting, an economist at Bank of America-Merrill Lynch, said: 'Beijing is unlikely to announce any 'big bang' stimulus package reminiscent of the four trillion yuan stimulus package in late 2008, but we think Beijing will be more aggressive in speeding up construction of existing projects and introducing more new projects.

'Despite noise from the media, we don't think Beijing will significantly step up property tightening.'

Additional reporting by Lulu Chen