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 Industrial output and retail sales are forecast to have expanded at
a slightly faster pace in May, a Reuters poll of 22 economists
showed, but factory deflation is seen persisting while uneven global
demand probably remained a drag on exports.
"Thanks to escalating policy support, we expect May's economic data
to show another marginal improvement in production activity, though
demand indicators may have remained lackluster," economists at UBS
said in a research note.
"We believe another 25 basis points (bps) rate cut is necessary to
further dampen borrowing costs for the real economy," they said in
the note.
China cut interest rates for the third time in six months in May -
on top of two reductions in the amount of money banks must keep in
reserve - in a bid to lower companies' borrowing costs and stoke a
sputtering economy that is headed for its worst year in a quarter of
a century.
Many analysts have already penciled in sub-7 percent growth for the
second quarter, raising the risk that the government will not meet
its full-year growth target of around 7 percent.
HEADWINDS PERSIST
The Reuters poll showed the May indicators will do little to change
the broad picture of an economy struggling under the weight of a
property downturn, widespread factory overcapacity and local
government debt.
Factory output growth in May is seen picking up a touch to 6.0
percent from April's 5.9 percent, while retail sales growth is
forecast to have quickened to 10.1 percent from 10.0 percent in
April.
Fixed asset investment is expected to have risen 12.0 percent in the
January-May period, the same rate as in the first four months of
this year, the poll showed.
Broad M2 money supply is seen up 10.5 percent in May compared to a
year ago, accelerating from April's 10.1 percent.
The amount of new loans disbursed by banks was seen rising to 900
billion yuan (94 billion pounds) last month from April's 707.9
billion yuan.
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The picture on the external side remained fairly weak, with exports
seen down 5.0 percent in May from a surprising 6.4 percent fall in
April, while imports were forecast down 10.7 percent, versus a 16.2
percent tumble in April.
The soft imports suggest domestic demand isn't picking up as much as
policymakers would like.
This is borne out by sustained pressure on profit margins at Chinese
companies, with the poll picking producer deflation to have
persisted for more than three years. The producer price index is
seen falling 4.5 percent in May versus 4.6 percent drop in April.
The UBS economists said that financing costs were still high in both
nominal and real terms, which continued to hurt corporate earnings
and balance sheets.
Annual consumer inflation is seen at 1.3 percent in May, down from
1.5 percent in April, and remained well below the annual government
target of 3 percent, the poll showed.
(Reporting by Judy Hua and Kevin Yao; Editing by Shri Navaratnam)
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