China seen posting weakest growth since 2009 in Q3, may spur more stimulus

[BEIJING] China is expected to post its weakest quarterly economic growth since the global financial crisis on Monday, raising pressure on policymakers to roll out more interest rate cuts and other support measures to avert a sharper slowdown.

Chinese leaders have been trying to reassure jittery global markets for months that Beijing is able to manage the world's second-largest economy after a shock devaluation of the yuan and a summer stock market plunge fanned fears of a hard landing.

The world's second-largest economy likely grew 6.8 per cent in the July-September quarter, slowing from 7 per cent in the second quarter, according to economists polled by Reuters.

That would be the weakest reading since the first quarter of 2009, when growth tumbled to 6.2 per cent, but would reinforce the consensus view that China is in the midst of a gradual albeit bumpy cooldown rather than a more calamitous one.

Sheng Laiyun, spokesman for the National Bureau of Statistics, said last month that third-quarter economic growth will be largely stable as the impact from the stock market slump on the broader economy has been limited.

Many analysts believe the third-quarter could mark the low point for 2015, predicting a flurry of stimulus measures announced over the past year will gradually take effect. But few expect any significant rebound. "Third-quarter growth could be the lowest this year as the government is unveiling more policy measures," Wang Jun, a senior economist at China Center for International Economic Exchanges (CCIEE), a Beijing-based think-tank. "But we cannot rule out the possibility that growth may slow even further the fourth quarter." A surprisingly resilient reading could reinforce scepticism about the reliability of Chinese official data. Some market watchers already believe current growth is much weaker than government readings suggest.

Despite weak exports and imports, factory overcapacity, a cooling property market and high levels of debt, Beijing reported annual economic growth in the first two quarters of 7.0 per cent, in line with its full-year target, with officials rejecting suggestions that the figures were being inflated.

Indeed, some economists suspect government statistics may actually be underestimating strong consumption and service sector growth, leaving investors to focus on the undeniable cyclical and structural weaknesses in manufacturing.

China's policymakers think they can stem a rapid rundown of the country's foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year's growth target, sources involved in policy discussions say.

The latest Reuters quarterly poll showed economists expect the central bank will cut interest rates by another 25 basis points (bps) and lower the amount of cash that banks must hold as reserves by 50 bps by year-end.

The same poll predicted economic growth may hold steady at 6.8 percent in the fourth quarter before easing to 6.7 per cent in the first quarter of 2016.

China's consumer inflation cooled more than expected in September while producer prices extended their slide to a 43rd straight month, highlighting the urgency for the central bank to tackle deflationary pressures.

To stoke activity, the central bank has already cut interest rates five times since November, and reduced banks' reserve requirement ratios, though analysts believe an increase in fiscal spending could be more effective in lifting growth.

The government has quickened spending on infrastructure and eased curbs on the ailing property sector, which have succeeded in reviving weak home sales and prices but have not yet reversed a sharp decline in new construction.

The last of the September monthly indicators will be released along with the GDP data, and analysts will be looking for signs as to whether momentum is still fading or if the economy may be slowly stabilising.

Factory output likely grew 6.0 per cent in September from a year earlier, slowing from August's 6.1 per cent rise.

Annual growth of fixed-asset investment, a crucial driver of China's economy, likely eased to 10.8 per cent in the first nine months of 2015 - the weakest expansion in nearly 15 years - from 10.9 per cent in January.

Annual retail sales growth was seen at 10.8 per cent in September, unchanged from August.

Data last week showed China's exports fell less than expected in September, with monthly figures even showing a recovery, but a sharper fall in imports left economists divided over whether its ailing trade sector is showing signs of turning around.

REUTERS