BEIJING: China's economy expanded at the weakest pace since 2009 last quarter, with output, investment and retail data pointing to a deepening slowdown.
Gross domestic product rose 7% in the three months through March from a year earlier, the statistics bureau said in Beijing yesterday, matching the median estimate of economists and the leadership's full-year expansion target.
While China's leaders have signalled tolerance for a slower expansion as they seek to rein in debt risks, corruption and pollution, the slowdown makes a case for policymakers to deploy greater stimulus. Premier Li Keqiang's government has already relaxed home-purchasing rules, cut interest rates twice and reduced the reserves banks must set aside in recent months.
"Economic momentum downshifted more significantly in March," said Andrew Polk, a Beijing-based economist at the Conference Board research group. "The implications are for further sluggishness in the second quarter, without a more forceful policy response."
Underscoring the effect slowing investment is having on the ground, Zoomlion Heavy Industry Science and Technology Co, the Changsha-based construction machinery manufacturer, on Tuesday flagged a first-quarter loss.
Industrial production rose 5.6% in March from a year earlier, the weakest since November 2008 and less than the 7% median estimate of analysts. Retail sales climbed 10.2%, compared with the 10.9% median projection. Fixed-asset investment excluding rural areas expanded 13.5% in the first quarter, compared with the 13.9% seen by economists.
"I am surprised at how weak the March industrial production is," said Wang Tao, chief China economist at UBS Group. "The impact of monetary policy is limited but they do need to cut rates."
She said that the government would also have to take steps to address a slowdown in the property sector and boost infrastructure spending.
Mr Li is seeking to engineer a transition away from debt-fuelled investment growth towards an economy where consumers and services make up a bigger share. Reflecting the shift, services accounted for 51.6% of GDP in the first quarter, 8.7 percentage points more than manufacturing.
The premier last month said policymakers would step in to support the economy if jobs and wages are hurt by the slowdown. The statistics bureau yesterday changed the description of the labour market to "basically stable," from "stable overall" in the prior quarter.
"There might be some worsening signs in the job market, and if consumption also worsens as a result, the Chinese government will have to do more," said Li Wei, the China and Asia economist for Commonwealth Bank of Australia in Sydney.
An economy-wide inflation indicator turned negative for the first time since 2009, suggesting room for further monetary easing. The nation needs to be vigilant about deflation risks and policymakers have "room to act", People's Bank of China governor Zhou Xiaochuan said last month. Broad deflation would escalate borrowers' debt burdens.
"Monetary conditions look uncomfortably tight," said Bloomberg economists Tom Orlik and Fielding Chen. "We continue to expect an accelerated move to ease in the weeks ahead, including cuts in interest rates and the reserve requirement ratio."
They calculated that GDP in the first quarter rose 5.3% from the previous three months on an annualised basis, similar to the way that the US reports its headline figure. That was down from 6.1% in the final quarter of 2014.
The International Monetary Fund this week retained its projection for a 6.8% expansion for the full year, growing less than India for the first time since 1999. Peers Russia and Brazil were seen contracting.
Cement output plunged 21% in March from a year earlier, electricity output dropped 3.7% and crude steel fell in the first quarter for the first time in 20 years. The declines are symptomatic of sliding investment in homes, the once vital engine that powered China's economy.
Property investment growth slowed to 8.5% in March, the slowest since early 2009 when China was hit by the global recession.
"When we are talking about China's slowdown, we're talking about the rapid declines in the traditional industries of property and steel, for instance," said Zhu Haibin, the Hong Kong-based chief China economist for JPMorgan Chase & Co.
"It takes time for new industries to take over — the so-called new sectors are at best stabilisers, not new growth engines."