China: GDP records lowest growth since Q3 2012
April 16, 2014
GDP grew 7.4% over the same period last year in Q1, which marked the weakest growth rate since Q3 2012. The print came in below the 7.7% increase observed in Q4, but overshot the 7.3% expansion that market analysts had expected.
Although the National Bureau of Statistics does not provide a breakdown of GDP by expenditure, additional data suggest that both investment and private consumption lost momentum in Q1. Urban fixed-asset investment, which includes capital and construction investment, expanded an accumulated 17.6% in nominal terms in the first quarter of this year, which was markedly down from the accumulated 20.2% increase recorded in the full year 2013. In addition, growth in nominal retail sales decelerated from 13.5% in Q4 to 12.0% in Q1. Exports recorded a 3.4% decline in Q1 (Q4: +7.4% year-on-year), while imports decelerated to a 1.7% increase (Q4: +7.1% yoy).
A quarter-on-quarter analysis corroborates the deceleration suggested by the annual figures as GDP rose a seasonally-adjusted 1.4% in Q1, which was below the 1.7% expansion recorded in Q4.
The market has started to price in the possibility of monetary easing measures if growth continues to slow. In addition, market analysts envisage an improvement in Q2, as Liu Li-Gang, chief economist for Greater China at ANZ points out:
The central bank is likely to shun a RRR cut while maintaining frequent open market operations to lower money market rates. We believe if growth falters again after Q2, we see a 50bps RRR cut could be a high probability event in Q3. Looking forward, we believe that an acceleration of policy implementation, plus an upward cyclical pattern of China's investment activities, will help propel the growth in Q2. The strength of the cyclical upturn, however, will hinge on whether the PBoC can permanently lower the funding costs facing the enterprises.
At China's annual National People's Congress held in early March, the government set a growth target of 7.5% for 2014. That said, Chinese officials signaled that the government is willing to tolerate a slightly lower growth rate for this year. FocusEconomics Consensus Forecast panelists expect GDP to expand 7.4% in 2014, which is unchanged from last month's estimate. In 2015, the panel sees economic growth of a slightly-lower 7.3%.