China Economists Raise Growth Forecasts Amid Signs of Weakness
China’s growth prospects have improved from three months ago, even after accounting for drops in steel and electricity output and the risk of a manufacturing contraction this month, economists’ forecasts show.
The world’s third-largest economy will expand 7.5 percent this year, according to the median estimate of 14 economists surveyed by Bloomberg News, up from a 7.1 percent forecast in February. Gross domestic product expanded 6.1 percent in the first quarter, the slowest pace in almost 10 years.
Recent signs of weakness aren’t an indication that the fledgling recovery will collapse, the economists said, citing surging investment and lending and rising retail sales. That contrasts with Credit Suisse Group AG’s prediction that manufacturing may contract this month and a World Bank caution against “premature” enthusiasm about the economy’s prospects.
“The Chinese economy is starting to turnaround,” said Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan. “It appears sensible to guard against excessive optimism. The pathway to recovery will not be entirely smooth.”
The economists predict an expansion of 6.8 percent this quarter, up from a February forecast of 6.6 percent. Growth will accelerate to 8 percent in the third quarter and 9 percent in the final three months, according to the survey.
“Things are still holding up pretty well,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney. “Infrastructure spending will continue to gather steam and there will be a more notable pick up in the second half.”
‘Zigzag’ Recovery
China’s recovery may be “zigzagging and complicated” as the effect of the global financial crisis deepens, Vice Premier Li Keqiang said May 21.
The National Audit Office last week said implementation of the government’s 4 trillion yuan ($585 billion) stimulus plan is being slowed because local governments are struggling to raise funds for projects.
Record automobile sales, a 30.5 percent surge in urban fixed-asset investment and 5.17 trillion yuan ($758 billion) of new lending in the first four months — more than in all of 2008 — spurred optimism that a quick economic recovery was possible. General Motors Corp., the biggest overseas automaker in China, said sales in the country rose 50 percent last month as stimulus measures spurred demand for minivans.
Investors’ enthusiasm cooled last week, prompting the first one-week fall in the Shanghai Composite Index in a month, after Credit Suisse predicted the Purchasing Managers’ Index may fall below 50 this month, signaling a contraction for the first time since February, in part because of weakness in the steel and aluminum industries easy no fax payday loan.
Falling Power Output
Bank of America Merrill Lynch, Barclays Capital and China International Capital Corp. all expect the manufacturing index to weaken this month, though they estimate it will stay at or above 50.
Power output fell 3.55 percent in April, raising questions over how industrial output could grow 7.3 percent in the same month. Power output picked up fractionally through mid-May, when it declined 0.57 percent from a year earlier, Business News reported May 26., ,
“The weaker than expected power consumption echoes the softening in economic activity,” said Tao Dong, chief Asia economist at Credit Suisse in Hong Kong. Steel output fell 3.7 percent in April from a month earlier after rising 11.6 percent in March.
Three of the surveyed economists upgraded growth estimates in the past two weeks. Deutsche Bank AG and Moody’s Economy.com raised their forecasts to 7.5 percent from 7 percent and SJS Markets Ltd. now sees 7 percent expansion from 6.5 percent.
‘A Lot of Momentum’
“Government-inducted investment is pulling the economy higher,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets. “There is still a lot of momentum in that program and it will last long enough to encourage more private investment.”
Concerns that falling electricity and steel output are a sign of economic weakness are overblown, said Wang Tao, an economist with UBS AG in Beijing. Power output is probably falling at the same time as industrial output is rising due to production cutbacks and plant closures in more energy-intensive industries, said Wang.
Weak electricity consumption can coexist “with a stronger growth in industrial production and GDP in 2009,” she said.
Concern that stimulus spending isn’t translating more quickly into demand for steel and other construction materials is misplaced, said Wang.
A “strong recovery” for metals and materials will emerge as projects reach “full force,” she said.
Home Sales, Construction
A 35.4 percent surge in the value of homes sold in the first four months will prompt developers to invest more and increase demand for construction materials in the second half, said Paul Cavey, an economist with Macquarie Securities in Hong Kong.
Industrial production growth may accelerate to 8 percent this quarter as stimulus spending gathers momentum, up from 7.3 percent last month and 5.1 percent in the first three months, the Ministry of Industry and Information Technology said May 22. Output may increase 10 percent in the second half, it added.
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