China’s economic recovery unexpectedly stumbled in the first three months of 2013 with slowing factory output and investment spending forcing analysts to start slashing full-year forecasts despite official insistence that the outlook was favourable.
The world’s second-biggest economy grew 7.7% in the first quarter from a year ago, slower than 7.9% hit in Q4 2012, below the Reuters consensus forecast of 8.0% and confounding expectations of a surprise uptick that emerged after surging credit and export data were published last week. “This number may well explain why there was so much liquidity support in Q1,” Tim Condon, head of Asian economic research at ING in Singapore, told Reuters.
“Industrial production is unexpectedly weak and that’s the source of weakness in GDP. Based on this, the consensus forecasts for GDP are going to be headed lower and we’ll certainly be looking at ours,” Condon added.
Stability clearly underwhelmed investors who had priced in an acceleration from the fourth quarter. Such an uptick would have underpinned the recovery trades that had gathered steam in the wake of data last week that showed a near 60% increase in total credit in the economy in Q1 2013 versus Q1 2012.
Rise of a new consumer class in China is a factor that keeps investors broadly optimistic about the longer-term future of the economy, provided policymakers can rebalance the drivers of growth away from the investment spending.