Chinese economic growth dips in Q1

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Photo - Petar Kujundzic/Reuters

Chinese economy has been expanding at a very slow rate in the past three years. Gross domestic product decline by an annual rate of 0.8% – from 8.9% to 8.1 % – in the first quarter year. The figures are less than official forecast of 8.3%. China has been hit by a decline in demand in US and European markets, while struggling at the same time to stimulate domestic demand.

“We are slightly disappointed. The main downside was with exports and some in terms of consumption,” Kevin Lai of Daiwa Capital Markets said.

World Bank warned on last week about China’s economy that growth could decline further in the coming months. Ardo Hansson, lead economist World Bank, said: “China’s gradual slowdown is expected to continue into 2012, as consumption growth slows somewhat, investment growth decelerates more pronouncedly and external demand remains weak,”

The international financial institution also cut its growth outlook for 2012 to 8.2% from its earlier projection of 8.4%. They also warned that China’s key and property markets were at main growth risk in future.

Chinese policy makers in the past few months took certain steps to curb property and consumer prices in the nation. The central bank also initiated a few preventive measures to control consumer and property prices resulting into desired positive effects. Consumer prices rose last year by 3.6% which was lower than the government’s goal of 4%.

Inspite of all the government policies and precautionary measures, analysts suggest keeping a constant price check and also maintaining a balance between the growth rates will help economic recovery.

“The basic threat is that the credit squeeze may hurt investment and slow growth more than the policymakers would want. It is difficult to manage it precisely, which is why people continue to be worried that things might slow down too much,” Richard Jerram of Bank of Singapore said.

Likely to improve

Chinese policymakers have taken some measures to ease their monetary policies. The central bank has also cut the reserve ratio requirement twice as in the past two months to boost lending.

The move to ease monetary policies has been successful as data released last week suggests that banks extended 1.01tn yuan ($160bn) in new loans in March. Reports also showed that fixed asset investment increased to 20.9% during the first quarter of the year.

Increase in lending will likely boost investments and growth in the future, analysts said.

“We have seen a good sign that liquidity from reserve ratio requirement cuts and open market operations is moving into the real economy,” said Dongming Xie of OCBC Bank.

“As such, I think the growth picture is likely to improve in the second quarter.”

China and Australia also signed a currency swap agreement last month promoting bilateral trade and investment which will allow the exchange of local currencies in central bank up to 30bn Australian dollars ($31bn) in coming three years. This will result to reduction in the cost of businesses and help in settling trade deals in local currency.

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