Posted on 07 Jul 2014
China's economy probably steadied in the second quarter with
annual growth holding firm at 7.4%, a Reuters poll showed, suggesting that a
recovery is taking hold as a flurry of government stimulus measures kick in.
All but three of the 21 analysts polled by Reuters predicted
that growth either stabilised or edged up between April and June, reinforcing
the view that the authorities have successfully arrested a “cool-down” with a
modest loosening in policies.
Indeed, even though economists expect the headline growth
rate to cling to an 18-month low of 7.4%, they also believe that China's export
and manufacturing sectors likely enjoyed their best performances in several
months in June.
"We expect China's upcoming June and second-quarter
data to show an economy that is still recovering," UBS analysts said in a
note to clients.
"With more easing measures underway and an ongoing
export recovery, sequential growth momentum should warm up further in the third
quarter."
Exports are forecast to rise 10.6% in June from a year ago,
faster than May's 7% expansion and the best showing in five months. Imports
likely snapped back into positive territory, growing 5.8%, after May's 1.6%
drop.
Growth in China's trade sector has gained traction in recent
months, helped by an improving US economy and as the government gave exporters
more tax breaks, credit insurance, and currency hedging options.
Manufacturing output, which accounted for 45% of China's
gross domestic product in 2012, is forecast to have grown 9% in June, up a
shade from May's 8.8%.
Faced with the need to cut China's dependence on exports and
investment for growth, Beijing tried earlier this year to convince investors it
is willing to slightly miss its annual growth target in exchange for
better-quality growth.
But authorities seem to have since changed their minds after
weak data early in the year.
Premier Li Keqiang said last month that he expects the 2014
GDP growth target of 7.5% to be met or exceeded and vowed the economy would not
suffer a hard landing.
The comments reinforced market expectations that Beijing
would roll out more stimulus measures if needed.
Recent business surveys signal factory activity may be
starting to stabilise after an unsteady start to 2014, while the services
sector continues to expand strongly.
Still, some economists warn the economic recovery appears
patchy, with a cooling property market and high local government debt levels
remaining as key risks. Faltering euro zone growth could also keep expected
export gains in check.
TARGETED MEASURES
Since April, China has steadily loosened policy by reducing
the amount of cash that some banks have to hold as reserves, instructing
regional governments to quicken their spending, and hastening the construction
of railways and public housing.
And analysts say Beijing is likely to unveil more stimulus
measures in coming months if the property sector shows signs of a sharper
slowdown, which could spillover into the broader economy. New home construction
starts are already down by nearly a fifth.
The real estate sector accounts for more than 15% of China's
economic output and directly impacts 40 other business sectors.
"For the economy to rebound fully, we believe policy
continuity, along with further easing, are necessary," Shen Jianguang, an
economist at Mizuho, said in a note.
Growth in fixed-asset investment, which is closely tied to
the property market, is forecast to have hovered at 17.2% in the first six
months of 2014. That is unchanged from the rate of growth seen in the first
five months of the year as slackening real estate investment drags on overall
spending.
In the meantime, analysts believe Beijing will keep monetary
conditions accommodative.
The broad M2 money supply measure probably expanded 13.5% in
June from a year ago, up a touch from May's 13.4%. Banks are forecast to have
lent 915 billion yuan (US$147.57bil) in June, up from May's 870.8 billion yuan.
Price pressures also likely stayed within the government's
comfort zone, giving policymakers room for further easing if required.
Annual consumer inflation is expected to ease to 2.4% in
June, well below the central bank's 3.5% target for 2014, while the producer
price index is likely to have dropped 1%.
