Chinese economy sees further slowdown in Q3

Growth in China’s investment and factory output missed forecasts in August, pointing to a further cooling in the world’s second-largest economy that will likely prompt the country’s government to roll out more support measures.

The downbeat data came on the heels of weak trade and inflation readings, raising the chances that third-quarter economic growth may dip below 7% for the first time since the global crisis.

Fears of a China-led global economic slowdown have roiled global markets in recent weeks, prompting speculation that the US central bank may hold off on raising interest rates later this week.

“The pace of slowdown in fixed-asset investment is relatively fast, dragged by the property sector, while the factory sector remains sluggish,” said Zhou Hao, senior economist at Commerzbank AG in Singapore.

“Overall, the economy is very weak and the central bank may have to continue cutting interest rates and banks’ reserve requirement,” Zhou said, adding he expected growth was very likely to dip below 7% in the July-September quarter.

Some economists believe current growth is already much weaker than official data suggest.

August power output, for example, was up just 1% year-on-year, and production of key industrial commodities such as steel and coal weakened.

Growth in China’s fixed-asset investment, one of the crucial drivers of the economy, slowed to 10.9% in the first eight months of 2015, the weakest pace in nearly 15 years, data from the National Bureau of Statistics showed on Sunday.

Analysts polled by Reuters had forecast an 11.1% rise, compared with 11.2% in January-July.

Factory output also was weaker than expected, rising 6.1% in August from a year earlier. Markets had expected a 6.4% increase, compared with July’s 6%.

Annual growth in China’s real estate investment also continued to cool, slowing to 3.5% in the first eight months, the weakest since early 2009, from 4.3% in January-July.

While home sales and prices are slowly recovering from a slump last year, the area of property sold rose at a slightly faster pace of 7.2% in January-August, analysts say it will take time for developers to work off a huge overhang of unsold houses and a sharp fall-off in new construction will continue to dampen demand for materials from cement to steel.

Sales of earth excavators fell 33% in August from a year earlier, hitting heavy machinery makers such as China’s Sany and US heavyweight Caterpillar, Bank of America Merrill Lynch said in a note last week.

“The property sector is the biggest drag on China’s economy,” said Yu Pingkang, chief economist at Huatai Securities in Shenzhen.

“A pick-up in infrastructure investment is insufficient to off-set the slowdown in property investment.”

Yu has pencilled in 6.9% growth for the third quarter.

Retail sales were the lone positive surprise, growing 10.8% in August from a year earlier, above forecasts of 10.5%, the same as July.

But the increase did not appear to jibe with recent reports from local and foreign firms in China of slowing sales.

Chinese e-commerce giant Alibaba Group Holding, which dominates online sales in the country, on Tuesday lowered its sales forecasts in a fresh signal that the economic slowdown is taking a bite out of consumer spending.


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