World Bank pares China 2014 outlook

Workers prepare steel frames for a bridge on the Lianyungang-Yancheng railway in Ganyu, Jiangsu province. The State Council announced pro-growth measures on April 2, including railway investment and urban renovation programs. SI WEI/CHINA DAILY

Analysts say economy is on the mend after a weak start for industrial output

The World Bank has lowered its forecast for China's economic growth this year to 7.6 percent from 7.7 percent, taking into account soft data on industrial output and exports in the first two months of the year, the multilateral organization said in a report on Monday.

It has maintained its 2015 forecast at 7.5 percent.

The bank said: "While the growth rate of industrial production has slowed, and exports contracted in the first two months of 2014, the trend is nevertheless strengthening, and we expect quarterly growth to rise at midyear as external demand from the high-income countries solidifies."

Some analysts have said that the Chinese economy probably began to rebound in March, although first-quarter growth may fall though the government's "bottom line" of about 7.5 percent. These analysts estimated first-quarter GDP growth at 7.2 to 7.4 percent.

But the economy is on the mend, and that will be evident in the second-quarter figures, which will get a lift from the government's "fine-tuning", said a report from The Australia and New Zealand Banking Group Ltd.

The State Council, the country's cabinet, announced pro-growth measures on April 2, including railway investment, urban renovation programs and tax breaks for small businesses. Analysts said those steps indicate the government aims to avoid a sharp slowdown and stabilize near-term growth.

Power generation, rail cargo volumes and crude oil processing activity in March all showed signs of improvement. Surveys also found rising business confidence.

According to the National Development and Reform Commission, from March 1 to 24, electricity output increased 8.4 percent year-on-year, compared with 5.5 percent growth in the first two months.

Further evidence of an economic rebound came in stronger export data, in the form of higher orders in the official and HSBC Holdings Plc manufacturing Purchasing Managers' Indexes for the first two months.

Now economists are looking to the next round of statistics. The National Bureau of Statistics is scheduled to release figures on consumer and producer prices on Friday.

First-quarter GDP data are due on April 16.

"We expect the upcoming March data to show a modest sequential recovery of economic activity, which may only partly offset particularly weak start in January and February," said Wang Tao, chief economist in China at UBS AG. The bank has estimated that GDP growth in the first quarter probably softened to 7.4 percent from 7.7 percent in the fourth quarter last year.

"Looking ahead, we expect growth momentum to rebound more visibly in the second quarter, on the back of reduced policy uncertainties after the annual session of the National People's Congress in March, an acceleration of ongoing construction and investment and the launch of new projects already approved in the government's budget and economic agenda," said Wang.

Analysts expect additional pro-growth measures will accompany the acceleration of structural reforms in the coming months.

The most likely step is fiscal stimulus, they said. In January and February, the Ministry of Finance reported a fiscal surplus of 786 billion yuan ($125 billion). The government has room to increase expenditure in the coming months, because the full-year budget deficit target is 1.35 trillion yuan.

On the monetary front, Zhu Haibin, chief economist in China at JPMorgan Chase & Co, said that the People's Bank of China, the central bank, will maintain neutral monetary and credit policies but with some fine-tuning to support growth.