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Economists: activity data set to stay weak in February

By Wang Yanlin | March 4, 2016, Friday | Online Edition

China's economic data for January and February combined may indicate a weak start of 2016, analysts said before the release of the data scheduled next week.

They expected the deflationary pressure to linger, trade to slump again, while industrial production, fixed asset investment and retail sales all moderated in their growth in the first two months because of insufficient demand.

"We expect the upcoming economic data release to show a weak start," said Wang Tao, an economist at UBS.

"The January-February's industrial production likely softened on the back of moderating power and steel production, as fixed asset investment stayed weak despite an infrastructure investment pick-up due to property investment's ongoing deceleration," Wang said.

She also estimated external trade likely remained in sharp contraction, while deflationary pressure may have eased a bit with a softer pace of producer price cuts and the overall credit growth momentum may stay robust.

Liu Zhiwei, an economist at Bank of Communications, said China's trade may present further contraction in February with exports sliding 17 percent and imports diving 20 percent.

"The condition may pose a big challenge for China as the country is still in the middle of industrial restructuring," Liu said. "The domestic consumption is yet to see large advancement, while industrial production still relies much on the external demand."

China's exports and imports declined 11.2 percent and 18.8 percent respectively in January, disappointing the market by a large margin.

Meanwhile, inflation growth will stay refrained with the Consumer Price Index, the main gauge of inflation, maintaining at a modest level of around 1.8 percent in February, Liu said, adding the Producer Price Index, the factory-gate measurement of inflation, likely dropped for a 48th consecutive month.

"We expect the government to announce new accommodative policies, such as more social and infrastructure spending, an easing bias for credit policies, and new investment projects during or after the upcoming National People's Congress meeting," said Wang with UBS.

China's gross domestic product grew 6.8 percent in the fourth quarter of last year, concluding 2015 with a rate of 6.9 percent, the slowest annual expansion in a quarter of a century.

To support the economy, the central bank announced on Monday night a reduction of reserve requirement ratio, or the amount of money banks need to hold in reserve, by 0.5 percentage points. It was the first cut since last October and the fifth since February -- estimated to free around 700 billion yuan (US$107.7 billion) into the market.

The earlier data showed China's manufacturing sector and the service sector both deteriorated in February.

The official Purchasing Managers' Index, a comprehensive gauge reflecting operational conditions in largely state-owned manufacturing companies, decreased 0.4 points from a month earlier to 49 in February, the lowest in more than three years. The official non-manufacturing PMI, a counterpart for the service sector, retreated to 52.7 in February, also down from 53.5 a month earlier.

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