China: Disappointing Start to 2013

Consensus Forecasts

China’s growth slowdown appeared to have finally turned a corner after the economy rebounded in the fourth quarter of 2012, ending seven straight quarters of declining output. While it was hoped that the Q4 upbeat performance signaled the start of a recovery, optimism about the Chinese economy has been tempered somewhat by recent disappointing data. Signs of softness have emerged in the latest batch of indicators, with growth in nominal retail sales and industrial output losing some momentum at the start of 2013. The former eased from 15.2% (y-o-y) in December to 12.3% in January-February, while the latter registered an annual 9.9% expansion in the first two months of 2013, down from 10.3% in December. Despite the downbeat reading from these two sectors of the economy, other areas continued to show clear signs of a recovery, though. For example, growth in fixed asset investment jumped by 21.2% (y-o-y) in January-February, exceeding slightly the full-year figure of 20.6% for 2012. Furthermore, the real estate sector reported strong gains in residential sales during the same period, while industrial profits reported solid growth as well.

On the inflation front, latest data proved particularly disappointing as consumer prices jumped by 3.2% (y-o-y) in February, accelerating from 2.0% a month earlier. The latest figure was the highest reading since April 2012, and the rise partly reflected the impact of the Lunar New Year holiday, which often pushes up food prices. Government officials have warned that they will not let inflation get out of control and recently levied a 20% capital gains tax in an attempt to curb soaring property prices.

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