China’s growth slowed more than forecast last quarter to the least in almost three years, prompting economists to predict a rebound as Premier Wen Jiabao loosens policy to counter weak domestic and European demand.
Gross domestic product in the world’s second-biggest economy expanded 8.1 percent from a year earlier after an 8.9 percent gain in the fourth quarter, the National Bureau of Statistics said in Beijing today.
An unexpected surge in March new yuan loans shows the ruling Communist Party is trying to avoid a deeper growth slide amid a once-a-decade power transfer to younger leaders. Pickups in industrial production and retail sales reported today may limit concerns that the world recovery is losing steam after job gains in the U.S. lagged forecasts and Europe’s sovereign-debt crisis threatened to worsen.
“The Chinese economy may be starting to bottom out and possibly will reaccelerate going forward,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “The pickup in lending in March and the slight gain in momentum for industrial production and retail sales suggest that growth might pick up in the months ahead.”
The Shanghai Composite Index pared gains following the report, rising 0.2 percent at the 11:30 a.m. local-time break after advancing as much as 0.5 percent. The MSCI Asia Pacific Index rose to a one-week high and South Korea’s won gained after a rocket launched by North Korea broke up and fell into the sea.
Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, jumped 2.8 percent in Hong Kong. Aluminum Corp. of China Ltd., the nation’s largest producer of the metal, climbed 3.3 percent.
China’s government bonds gained, with the yield on the 3.94 percent bond due January 2021 falling three basis points to 3.52 percent as of 10:27 a.m.
The median estimate in a Bloomberg News survey of 41 economists was for an 8.4 percent first-quarter expansion. Growth trailed forecasts by the most since the third quarter of 2008, based on Bloomberg calculations.
Analysts at Bank of America Corp., Nomura Holdings Inc. and IHS Global Insight said the first quarter may mark a trough.
China and other countries in Asia are increasingly important for global growth, with expansion in developing East Asia and Pacific nations forecast by the World Bank to be triple the entire world’s pace this year.
Indian industrial production rose less than predicted in February, a report showed yesterday, with January’s figure revised lower because of a data error. Singapore’s economy rebounded last quarter, the government said today.
A moderation in China could drag down growth in commodity- exporting nations including Australia, which grew at half the pace economists forecast in the fourth quarter. It may also weigh on sales of foreign companies such as Bayerische Motoren Werke AG, the world’s largest luxury automaker, which delivered more cars in China than in the U.S. for the first time last quarter.
Wen in March pared this year’s economic-growth target to 7.5 percent, the lowest since 2004, as the government seeks to cut reliance on exports and capital spending and make expansion more sustainable.
At the same time, economists at Deutsche Bank AG, Nomura Holdings Inc. and Morgan Stanley last month raised their China growth forecasts for 2012 partly on anticipation of policy loosening.
Data yesterday showed new yuan lending was the highest in a year and money-supply growth quickened in March. Local-currency- denominated loans were 1.01 trillion yuan ($160.1 billion), the People’s Bank of China said, exceeding all 28 estimates in a Bloomberg News survey.
Wen has said economic policies will be fine-tuned as needed even as he prolongs a campaign to curb property prices and speculation. The value of first-quarter home sales fell 17.5 percent. During a visit to Fujian and Guangxi provinces April 1 to 3, the premier pledged to push ahead on key investment projects, accelerate export tax-rebate payments and ensure “reasonable” liquidity.
“More monetary easing will be needed to facilitate a controlled deceleration,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA and the only analyst who correctly predicted the first-quarter figure. She said growth will slow to 7.8 percent this quarter and pick up to 8.1 percent in the third period.
Slowing Yuan Gains
The government has also slowed gains in the yuan to help cushion exporters against sluggish demand from developed countries. The currency is little changed against the U.S. dollar this year after a 4.7 percent rise in 2011. It strengthened 0.1 percent today.
Industrial production increased 11.9 percent in March from a year earlier, up from an 11.4 percent gain in January and February combined, today’s statistics bureau report showed. Retail sales advanced 15.2 percent in March, compared with 14.7 percent in January and February.
Fixed-asset investment excluding rural households rose 20.9 percent in the first quarter, compared with the 21 percent median estimate of economists.
“Growth will stabilize and recover modestly over the rest of the year,” said Brian Jackson, a Hong Kong-based economist with Royal Bank of Canada, who forecast an 8 percent rise in GDP. “External conditions look set to improve in coming months, and domestic growth should also get a boost as the impact of previous policy tightening fades and is replaced by the impact of more accommodative policy in recent months.”
South Korea Rate
Elsewhere in Asia today, the Bank of Korea kept borrowing costs unchanged for a 10th straight month after North Korea’s launch and as austerity measures in developed economies limit demand for exports. Governor Kim Choong Soo and his board held the benchmark seven-day repurchase rate at 3.25 percent.
In the U.S., the cost of living probably rose at a slower pace in March as the run-up in energy prices lost steam, economists said before a report today. The consumer-price index increased 0.3 percent last month after rising 0.4 percent in February, according to the median forecast of 80 economists surveyed by Bloomberg News.
China Reserve Ratio
China has lowered banks’ required-reserve ratio twice since November to boost liquidity and spur loan growth. At the same time, authorities have refrained from cutting interest rates amid inflation concerns. The central bank may lower the ratio, currently 20.5 percent for large lenders, by another 100 basis points this quarter after two cuts since November, according to the median forecast in a Bloomberg survey last month.
“The economic growth slowdown is a natural result of the government’s moves to curb inflation and control the property market,” said Fan Jianping, Beijing-based chief economist at the State Information Center, a researcher under the government’s National Development and Reform Commission.
Sheng Laiyun, spokesman for China’s statistics bureau, said at a press conference today that “major economic indicators in March all improved from the previous two months” and he had “a lot of confidence in achieving relatively fast growth” this year.
Even so, he said that “great attention should be paid to some outstanding contradictions and problems” in the economy, including export growth and increasing operating difficulties at some companies.
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