China Q2 economic growth seen cooling to 6.6 %, weakest in seven years

China’s economic growth likely cooled to a fresh seven-year low of 6.6 percent in the second quarter as the industrial sector loses steam and a boost from financial services fades, according to a Reuters poll of 61 economists.

Analysts expect the world’s second-largest economy to lose further momentum in the second half of the year, prompting the government and central bank to roll out more support measures even as they worry about fallout from Britain’s secession from the European Union.

That could in turn signal fresh weakness for the yuan, which recently slid to 5-1/2 year lows, adding to a wall of worry for international investors.

The expected April-June growth rate compares with 6.7 percent in Jan-March and would be the weakest since the first quarter of 2009, when it fell to 6.2 percent during the global financial crisis. China’s economy grew 6.9 percent in 2015, its slowest rate in more than two decades.

Policymakers have relied on record credit expansion and an infrastructure spending spree to stabilize growth, though concerns are growing that over reliance on debt and government spending threatens a “vicious cycle” of slower growth and delayed economic reforms. Some analysts believe a huge bank restructuring may be inevitable.

An “authoritative source” in the official People’s Daily warned in May of the dangers of another massive credit-led stimulus like that during the global crisis, and economic data missed expectations in May as credit expansion started to slow.

Data in recent months have shown the government is bearing an increasing amount of the load as it struggles to put the economy on firmer footing and private investment dwindles.

Fixed-asset investment slipped below 10 percent for the first time since 2000 in January-May as a boost from record credit growth was already fading.

Investment by private firms slowed to a record low for the year through May, with growth cooling to 3.9 percent from double-digits last year. Private investment so far this year has been the slowest since China began publishing the data in 2012.

Factory surveys have shown stagnation in the manufacturing sector, but an uptick in services. However, growth in the finance industry, a key part of the services sector, is expected to slow sharply in the second half, as many investors continue to shun the country’s stock markets after last year’s crash.

MONTHLY INDICATORS

Economists in the poll estimated GDP grew 1.6 percent quarter-on-quarter, up from 1.1 percent in the first quarter, though only 13 analysts gave sequential forecasts.

GDP data will be announced on July 15, along with monthly indicators on investment, industrial output and retail sales.

Fixed asset investment growth likely cooled further to 9.4 percent for January-June. The 9.6 percent pace recorded in the first five months of the year was the first time investment expanded by only single digits since 2000.

Analysts will be closely watching the portion of investment that comes from the private sector, as record low spending by private firms so far this year indicates a gloomy outlook for future business prospects.

Industrial output likely grew 5.9 percent in June, down only slightly from May. Higher commodity prices and spending on infrastructure and property projects appear to have lent some support to the sector for now.

Retail sales growth was likely steady in June at 10 percent.

Source: Reuters