From the SMH blog:
Nomura economist Yang Zhao:
The weaker Q1 GDP growth and much weaker than expected March activity data suggest that growth momentum remains weak, which calls for further policy easing. We maintain our call of one more interest rate cut and one more reserve requirement ratio cut coming in each of the three remaining quarters this year.
With the effects of previous policy easing starting to be felt, we expect growth momentum to improve on a sequential basis. However, given a high base from last year, the year-on-year GDP growth rate is likely to slow to 6.6 per cent in Q2 before rising in H2. We maintain our annual GDP growth forecast at 6.8 per cent.
CEBM Group macro analyst Qi Yifeng:
The growth rate is higher than expected, as all evidence pointed to GDP growth of lower than 7 per cent. But it doesn’t change our view that China needs to cut either RRR (reserve requirement ratio) or interest rate every month during the next three to six months to keep the economy from slowing further, because all other data we see, such as industrial production, exports, power generation etc all look terrible.
Huatei chief economist Yu Pingkang
The weakest part of the economy comes from the manufacturing sector, which reflected in the sluggish industrial output data. It might indicate that the government’s fiscal policy, especially infrastructure investment, is not yet taking effect to stimulate the economy. Overall, all data show weak domestic demand and consumption. But we think the economy is likely to stablise slightly in the second quarter if the government sticks to the current fiscal policy and continue to support the money markets.
Fitch head of Asia-Pacific sovereigns Andrew Colquhoun:
We expect real GDP growth of 6.8 per cent this year and 6.5 per cent next year. Slower growth should not be viewed as bad news if it means the economy is adjusting to a more sustainable path. But the adjustment needs support from consumption while the economy adapts to slower investment. It’s sobering that the economy has become so reliant on construction and real estate to generate jobs. The ongoing correction in real estate sector poses the biggest single risk to Fitch’s outlook.
Bank of East Asia chief economist Paul Tang:
There is a chance to see a cut in interest rate and bank reserve ratio, while there is a need to cut one more time for both in the second half of this year. We still maintain 7 per cent GDP growth forecast for 2015, expecting economic growth in the US to give support to China’s exports.
Hwabao Trust analyst Nie Wen:
The 7 per cent GDP growth was in line with our expectation, but industrial output and fixed asset investment were well below our expectation. It indicates the government needs to relax its monetary policy in a relatively big scale. We expect a RRR cut or interest cut this month. RRR cut could be at between 50 and 100 basis points.
Daiwa senior economist Kevin Lai:
If you look at Q1, exports were poor, industrial production was poor, FAI was much slower, retail sales soft, so how can GDP in real terms still be 7 per cent? In reality, growth must be much lower than that. I don’t think looking at the GDP number is meaningful.
Yes, there will be easing, but there won’t be a lot of easing either. We still have at least one more interest rate cut, one more RRR cut in our forecasts. If they don’t do anything, the real economy will keep suffocating and the ultimate end game will be quite ugly.
Yes, more easing to come, and credit data through late last year and into early this year shows a little better for growth in Q2 but it will pass like rain on the mountainside.
There is no rebound coming. The economists can’t see it because they only look at the cycle and expect Chinese authorities to do what Western can-kickers have been doing for decades, to add stimulus every time something slows.
But China is very deliberately slowing structurally and stimulus is being rolled out only to maintain the glide slope to lower and less debt-driven (and commodity intensive) growth, as well as towards productivity and consumption led drivers.
For once, a group of sovereign macro managers are doing exactly what they should and it is no surprise that the can-kicking, trend line economists that have sunk Western economies are so blind to it.
