China’s Economy Seen Powering Through Hit From Flooding Damage

  • Rains may cut third-quarter growth by as much as 0.2%: survey
  • Agriculture gets hurt while construction gains, analysts say

China’s worst flooding since 1998 will weigh on third-quarter growth but the drag won’t continue into the fourth quarter, according to a Bloomberg survey of economists.

The storms will shave as much as 0.2 percentage points from this quarter’s expansion, according to almost half of economists in a Bloomberg survey. The floods won’t have any impact on growth in the final quarter, according to more than half of analysts in the July 18-20 poll. Agriculture will take the worst hit and construction and infrastructure may gain, they said.

Weeks of torrential rains across central and southern China are the latest challenges to growth that held steady at 6.7 percent in the second quarter from a year earlier, matching a first-quarter pace that was the slowest since 2009. Direct economic losses from the floods are estimated to be 147 billion yuan ($22 billion), the government said last week.

“There will be a modest negative impact” with weaker output from agriculture and manufacturing in the third quarter, said Dariusz Kowalczyk, a senior economist at Credit Agricole SA in Hong Kong. “The flooding seems very severe.”

The biggest drag in the third quarter will be from agricultural output, according to more than half of the 15 economists in the survey. Almost all said construction and infrastructure will get the biggest lift in the fourth quarter amid rebuilding efforts. Growth will slow to 6.5 percent in the third quarter and 6.4 percent in the next two quarters, according to a separate Bloomberg survey.

Food Prices

With heavy floods in the Yangtze River that’s home to China’s major rice, pig and fish- farming areas, several analysts said third-quarter food inflation may rise. Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said it will help lift the consumer price index closer to the government’s target of 3 percent, giving the central bank less room to cut interest rates. The CPI increased 1.9 percent in June from a year earlier.

“The flooding as a risk to growth is very much on the radar for policy makers and everyone is discussing the potential damages,” said Julia Wang, an economist with HSBC Holdings Plc in Hong Kong, who expects the floods to boost second-half growth. “There will be a lot more infrastructure investment geared toward trying to compensate” and fiscal stimulus will help offset the negative impact, she said.

Heavy rains since late June have killed hundreds, stalled transport and idled factories. Disruptions continued this week as heavy rains again drenched the country, halting flights in Beijing.

The National Meteorological Center raised its storm alert Wednesday to the third highest of four levels as downpours stretch from the northwest to the southern border with Vietnam. The highest alert was issued by Hebei province, which surrounds Beijing and is the top steel-making province, with nearly a quarter of national output.

— With assistance by Miao Han, and Cynthia Li

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