China’s Q1 GDP report: 3 key questions to ask

Due on Friday, China's first-quarter growth report card will likely confirm that the multi-year slowdown in the world's second-biggest economy is showing little signs of abating.

China's economy in 2015 slumped to its lowest annual expansion rate in 25 years. (AFP/Johannes Eisele)

SINGAPORE: The health of China's economy has remained high on global investors' watch lists, after another spectacular equity market rout at the start of 2016 had traders sitting on the edge of their seats again.

Come Friday (Apr 15), the release of first-quarter gross domestic product (GDP) is unlikely to soothe or alleviate any of these concerns, with experts predicting the multi-year slowdown in the world's second-biggest economy to show little signs of abating.
After the economy logged its slowest pace of expansion in a quarter of century in 2015, Beijing has set a growth target range of 6.5 to 7 per cent for 2016. Will the first-quarter growth report card fall within target or will it deliver another panic attack? We find out.
Q: What are analysts predicting?
According to a Reuters poll of 64 economists, China's economic growth could well hit a multi-year low in the January-to-March period, with GDP estimated to have slowed to 6.7 per cent from a year ago period.
This would mark the weakest pace of expansion since the first quarter of 2009, when growth fell to 6.2 per cent.

"China's economy continues to grow below potential, resulting in low inflation and overcapacity in heavy industry," an Apr 8 report from Moody's Analytics said. "Monetary and fiscal stimulus measures have helped prevent a sharper downward slide, but the government remains wary of provoking another run-up in debt and misplaced investment."

"Further deceleration in top-line GDP growth this year is expected," it added.
Q: But recent data show signs of improvement - isn't that a good sign?
Indeed, economic data of late have offered signs of stabilisation, particularly as China's official gauge of factory activity unexpectedly expanded in March for the first time in nine months.
A similar improvement was seen in the Caixin manufacturing PMI for March, alongside a steady rise in inflation and surprisingly upbeat exports, which raised hopes that the downward pressure on the economy is easing.
However, some economists say it remains too early to read too much into this.
"I don't think we can look at the monthly data individually, particularly with the Lunar New Year distortions in March," Tony Nash, chief economist and managing partner at Complete Intelligence, said. "You've got to look at the first quarter as a whole and exports are seeing negative growth year-on-year in the first three months."
To be sure, as growth sputters further, the government is likely to continue to step on the easing pedal to provide support.
"For now, policymakers are erring on the side of caution. Policy is likely to be eased further, with the focus turning back to structural reform only later in the year," said Mark Williams, chief Asia economist at Capital Economics.
"With policy easing feeding through to the economy, a slight pick-up in growth is likely over coming months, rather than the hard landing many were expecting."
Q: What does that mean for markets?
If China's growth figure disappoints, it may not necessarily be bad news for investors, according to Margaret Yang of CMC Markets Singapore.
While the possibility of a sharp correction can not be ruled out, hopes of further stimulus measures will eventually underpin market sentiment, the market analyst told Channel NewsAsia.
"If there is any disappointment in the GDP figure, markets will expect more stimulus to be carried out by the central bank in order to achieve their targeted 6.5 to 7 per cent growth. Any sign of weakness could probably lead to more room for monetary policy, for example, another round of reserve ratio requirement cut."
"In addition, market sentiment has improved greatly as the US Federal Reserve decided to remain cautious on rate hikes this year. Recently adopted policies such as loosening control on margin finance has also allowed more capital to flow into the equity market," Ms Yang added.

- CNA/sk