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Instant View: China GDP growth slows in first quarter

BEIJING (Reuters) - China's annual economic growth slowed to an 18-month low of 7.4 percent in the January to March quarter of 2014, just above market expectations, confirming the world's second-largest economy lost momentum at the start of 2014.

The government has already taken some steps to stabilize the economy, and has said that this year's growth target of 7.5 percent is approximate.

KEY POINTS

Q1 GDP +7.4 pct y/y (forecast +7.3 pct, previous qtr +7.7 pct)

Q1 GDP +1.4 pct q/q (forecast +1.4 pct)

March industrial output +8.8 pct y/y (forecast +9.0 pct)

March retail sales +12.2 pct y/y (forecast +12.1 pct)

Jan-March fixed-asset investment +17.6 pct y/y (forecast +18.1 pct)

COMMENTARY

TOMMY XIE, ECONOMIST, OVERSEA-CHINESE BANKING CORPORATION,

SINGAPORE:

"Judging from quarter-on-quarter reading, the 1.4 percent has been the slowest since China officially released the quarter-on-quarter reading from the fourth quarter 2010. This shows that the downward pressure for growth remains.

"Fixed investment in March also disappoints, in my view.

"Given China has already rolled out the mini fiscal stimulus back in March, it may take some time for the fixed investment to rebound from the low of 17.6 percent year-on-year in the first quarter.

"I don't expect more stimulus for now.

"We are looking for better exports in the second quarter as China will get benefit from a global recovery."

WANG TAO, ECONOMIST, UBS, HONG KONG:

"From the detail, it looks as though industrial production was weaker than we had expected, but the tertiary sector ... had been stronger. We usually look at the industrial sector high-frequency data more, like steel product ... other parts of the economy seem to be holding up a bit better."

LU ZHENGWEI, CHIEF ECONOMIST, INDUSTRIAL BANK, SHANGHAI:

"The GDP data is better than expected. Considering government supportive measures that have started in early April, we expect growth to rebound to around 7.5 percent in the second quarter.

"But the problem that the government has to resort to stimulus repeatedly to support the economy means it's having a hard time to unleash new growth drivers.

"Going forward, further monetary policy loosening may not be needed as the central bank has kept money market rates relatively low."

ZHOU HAO, CHINA ECONOMIST, ANZ, SHANGHAI:

"While Q1 GDP growth slowed, we believe that the growth momentum has stabilized in March. For example, the industrial production growth rose to 8.8 percent y/y from 8.6 percent in January-February, and the retail sales grew 12.2 percent in March, up from last reading of 11.8 percent. Fixed asset investment surprisingly moderated to 17.6 percent in Q1, down from 17.9 percent in January-February.

"In addition, port throughput data and our field study also suggest that China's trade may have bottomed out, and will become more resilient than what the current headline numbers suggest."

LOUIS KUIJS, ECONOMIST, RBS, HONG KONG:

"I think it is actually not too bad. It is better than the worst fears. And I think with retail sales doing reasonably well, what we see is that the weakness in the physical part of the economy is still there - and we knew it was there - but that China's economy is helped by the fact that the service economy and consumption ... that part of the economy is holding up quite well.

"In terms of the overall economy and what it means for the labor market, I think things are actually better than the worst expectations."

JULIAN EVANS-PRITCHARD, CHINA ECONOMIST, CAPITAL ECONOMICS,

SINGAPORE:

"We were forecasting growth of 7.5 percent this quarter so we were a little bit more upbeat, because we think that the downwards pressure on growth has eased somewhat and fiscal spending should help support growth going forward with the government's sort of mini fiscal stimulus.

"Obviously policymakers seem pretty comfortable with the current pace of growth... On the one hand I don't think they're going to announce any further significant measures to support growth, so we're not expecting a rebound. But on the other hand, we think that growth has stabilized somewhat.

"One thing to bear in mind is that there was a sharp slowdown in Q1 last year, so that sort of helped support the year-on-year figures in this quarter. So even though the economy is stabilizing, we expect Q2 growth to be slightly lower than Q1 because of that base effect.

"It doesn't change our view. We think that obviously the economy is within the range in which policymakers are comfortable with, so we're not expecting any major measures to support growth. So we're not expecting a rebound in growth, we're expecting it to slow but probably not as much as a lot of people fear."

ANNETTE BEACHER, HEAD OF ASIA-PACIFIC RESEARCH,

TDSECURITIES, SINGAPORE:

"I can't see the Chinese authorities reacting to 7.4 percent when their full-year target is 7.5 percent. I think we need to see a dramatic fall in these hard numbers before the Chinese authorities would feel obligated to stimulate.

"In terms of retail sales and industrial production, I was expecting them to undershoot consensus by a pip or two and that was the case for industrial production at 8.8 percent. That's a reasonably low number given the good old days used to be 15-percent plus. That sector is continuing to moderate and now there is an even bigger gap between industrial production and retail sales. So the rotation from relying on heavy industries towards consumption is certainly coming to fruition."

DARIUSZ KOWALCZYK, SENIOR ECONOMIST/STRATEGIST, CREDIT

AGRICOLE CIB, HONG KONG:

"Chinese GDP slowed more sharply than expected in Q1, to 1.4 percent quarter on quarter (5.8 percent annualised), and past data was revised lower.

"This highlights the depth of deceleration at the start of the year. Year-on-year (YoY) growth slowed to 7.4 percent, slightly beating consensus, but this is less important than current, poor momentum.

"The silver lining is that retail sales and industrial output both rebounded in March, suggesting that growth is bottoming out. Indeed, we expect this to be the low point in terms of sequential and probably also YoY growth.

"Market reaction should be modestly negative unless people make the usual mistake of focusing on YoY data. Any decline in CNY, CNH or equities should be seen as a buying opportunity."

STEPHEN GREEN, ECONOMIST, STANDARD CHARTERED, HONG KONG:

"It's not bad enough to change monetary policy, but forward indicators suggest that in the next few months we will see more aggressive easing.

"We expect a cut in the reserve requirement ratio by 50 basis points in the second quarter."

CHESTER LIAW, ECONOMIST, FORECAST PTE, SINGAPORE:

"Good news across the board, even with industrial production softer than expected. This validates the policy maker's stance that no further easing will be required.

"However, it must be noted that the GDP number still falls short of the 7.5 percent rate initially projected, and though the authorities have gone on record to say that it is job creation which is more important, we still expect 7.5 percent to anchor expectations."

MARKET REACTION

The CSI300 Index of top Shanghai and Shenzhen listings was up 0.3 percent shortly after the data, but then pared the gains. The Chinese yuan was quoted at 6.2221 yuan against the dollar.

BACKGROUND

The government has set a target of around 7.5 percent for economic growth in 2014. It has said that a figure slightly above or below that would still be acceptable because its main focus is on creating employment.

(China economics team; Editing by Jonathan Standing and John Mair)

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