China’s longest streak of expansion below 8 percent in at least 20 years is sending a message to suppliers and investors around the world to get used to slower growth in the second-biggest economy.
The 7.7 percent increase in first-quarter gross domestic product from a year earlier marked the first time in data going back two decades that four periods in a row have seen growth of less than 8 percent. The figure released Monday by the National Bureau of Statistics in Beijing was also the worst miss of analyst estimates since the third quarter of 2008, according to data compiled by Bloomberg.
A sustained shift to a lower-growth gear would affect everything from iron-ore demand in Australia to the fortunes of companies including carmaker General Motors Co., who are counting on China to drive profits. It increases challenges for global policy makers contending with Europe’s debt turmoil and Japan’s record monetary easing, with BHP Billiton Ltd. saying GDP gains will moderate toward 6 percent later this decade.
“While this is a shock in the short term, it is part of the growing-up of China’s economy,” said Louis Kuijs, Hong Kong-based chief China economist at Royal Bank of Scotland Group Plc, who cut his forecast for 2013 expansion to 7.8 percent from 8.4 percent after yesterday’s data. Investment in productive capacity lacks the knock-on effects on GDP it once had because of reduced overseas demand for the products of the nation’s factories, he said.
The benchmark Shanghai Composite Index of stocks yesterday had its biggest drop this month and was headed today for a fourth straight decline, while the MSCI Asia Pacific Index fell for a second day.
Separately today, Moody’s Investors Service lowered its outlook for China’s credit rating to stable from positive, saying the nation has made less progress than anticipated in reducing risks from local-government debt and credit expansion that may harm growth.
As China’s expansion fails to pick up steam, global finance chiefs from the Group of 20 nations gathering in Washington later this week may find little ground to criticize Japan’s efforts to stoke its economy, with Europe facing the risk of blame for overzealous fiscal cuts.
Australian Treasurer Wayne Swan said last week that he supports the Federal Reserve’s quantitative easing and Japan’s reflation policy, in contrast to Europe’s “too-harsh” pursuit of austerity as the world economy struggles to shake off the global financial crisis. Graham Kerr, chief financial officer of Melbourne-based BHP Billiton, said April 10 that China’s expansion will approach 6 percent after two years.
Detroit-based GM counts China as its biggest market, with vehicle sales forecast to top 20 million for the first time this year.
Separately yesterday, the World Bank cut its forecast for China’s growth this year to 8.3 percent from 8.4 percent, as it updated projections for the East Asia and Pacific region. The International Monetary Fund may lower its U.S. expansion outlook to 1.7 percent from 2 percent, according to a draft report obtained by Bloomberg News ahead of today’s release.
China’s first-quarter expansion was lower than all except two analyst estimates out of 41 ranging from 7.5 percent to 8.3 percent, as well as the median forecast of 8 percent. October-December growth showed the first acceleration in two years, up from the third quarter’s 7.4 percent rate. For 2012, expansion was 7.8 percent, the least since 1999.
The government didn’t show alarm over yesterday’s report, saying the economy was “stable” in the first quarter. The expansion rate isn’t low compared with other nations, China’s new leadership is putting more emphasis on quality of growth and urbanization will continue to create demand, Sheng Laiyun, a statistics bureau spokesman, said at a briefing in Beijing yesterday.
China last month set a 7.5 percent growth target for this year and new Premier Li Keqiang said March 17 that the nation must maintain that pace through 2020 as the country seeks to double per capita income this decade.
Sheng said he’s optimistic China will achieve the goal this year, as the nation’s economic fundamentals remain sound. At the same time, China’s potential growth rate has dropped as part of an “inevitable trend,” he said.
China doesn’t need to expand faster than 8 percent in part because the number of new workers from 15 to 24 years old, the main source of job seekers, has been in decline since 2010, according to Li Wei, a Shanghai-based economist at Standard Chartered Plc.
“This pressure on creating new jobs is easing,” Li said. “The leadership has finally realized that this economy doesn’t really need double-digit growth.”
Other institutions that cut their growth forecasts after the data included JPMorgan Chase & Co., Daiwa Capital Markets, Nomura Holdings Inc. and Mizuho Securities Asia Ltd.
Li Miaoxian, a Beijing-based economist at Bocom International Holdings Co., the investment-bank unit of China’s fifth-largest lender, said slower growth is “no longer cyclical.”
“Growth in the first quarter is neither good nor bad,” Li said. “It’s a level around China’s potential growth rate that is set to continue.”