Authorities have ruled out major stimulus to fight short-term dips
in growth, signaling the slowdown was an expected consequence of
their reform drive, even as some analysts think the economy will
lose further momentum.
The economy grew 7.4 percent in the January-March quarter from a
year earlier, the National Bureau of Statistics said on Wednesday.
That was slightly stronger than the median forecast of 7.3 percent
in a Reuters poll but still slower than 7.7 percent in the final
quarter of 2013.
It was China's slowest annual growth since the third quarter of
2012, when the world's second-largest economy also grew 7.4 percent.
"The slowdown of China's economy is a reflection of a transformation
of the economic mode," said Sheng Laiyun, of the National Bureau of
"There is no fundamental change in the improving trend of China's
economy. The economy is still moving steadily towards the expected
For the quarter, the economy grew 1.4 percent, the slowest rate in
two years, which Credit Agricole strategist Dariusz Kowalczyk said
equated to annualized growth of 5.8 percent.
"This highlights the depth of deceleration at the start of the
year," he said.
Beijing has announced some modest measures, such as tax cuts for
small firms and speeding up investment in railways, to try to steady
growth near its target of 7.5 percent without disrupting plans to
restructure the economy or worsening problems of overcapacity and
"Policymakers seem pretty comfortable with the current pace of
growth," said Julian Evans-Pritchard, an economist at Capital
Economics in Singapore. "I don't think they're going to announce any
further significant measures to support growth."
Activity data for March, released with the GDP figures, showed that
China may be making some headway in its attempt to enhance the role
of consumption and cut its reliance on traditional growth engines of
exports and investment.
Retail sales were a shade ahead of forecasts with an annual increase
of 12.2 percent, while factory output came in just below
expectations with a rise of 8.8 percent.
"That sector is continuing to moderate and now there is an even
bigger gap between industrial production and retail sales. So the
rotation from relying on heavy industries towards consumption is
certainly coming to fruition," Annette Beacher, head of Asia-Pacific
research at TDSecurities in Singapore said.
Cumulative fixed-asset investment in the first three months of the
year was 17.6 percent higher than a year earlier, again on the low
side of forecasts.
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The services sector, which includes retail, made up 49 percent of
gross domestic product in the first quarter, 4.1 percentage points
more than the industrial sector.
Growth in retail bodes well for employment, a top government
priority, as services are now the biggest employer in China.
"The resilience of the relatively labor-intensive services sector
has helped the labor market hold up reasonably well in the first
quarter, even though it cooled," Louis Kuijs, RBS economist in Hong
Kong, said in a note.
Previously released figures for March had raised concerns that
economy was losing more momentum than expected, and even though
first-quarter GDP was slightly better than forecast, those worries
Exports fell for the second month in a row and imports dropped
sharply in March, while money supply grew at its slowest annual pace
in more than a decade. Official and private surveys also show the
manufacturing sector continuing to struggle.
Stephen Green, an economist with Standard Chartered in Hong Kong,
expects a 50 basis point cut on the reserve requirement ratio banks
in coming months, a move that would free up more funds in the
"It's not bad enough to change monetary policy, but forward
indicators suggest that in the next few months we will see more
aggressive easing," Green said
(Additional reporting by Kevin Yao; editing by John Mair)
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