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March 4, 2015

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Congress may revise growth forecast

CHINA’S economic data for February may confirm a soft start for 2015 with real activity stumbling, inflation staying low and trade remaining soft, economists said ahead of the data’s release next week.

The downward pressure could prompt the government to revise China’s growth target to around 7 percent during the annual session of the National People’s Congress that opens tomorrow.

“We expect the data to show real activity staggered during the first two months,” said Wang Tao, an economist with UBS. “Together with mounting deflationary pressure, policy easing has been hastened.”

Wang predicted the Consumer Price Index, the main gauge of inflation, may increase 0.9 percent from a year earlier in February, slightly up from 0.8 percent in January due to the Spring Festival holiday.

Meanwhile, indicators for real activity, including industrial production, retail sales and fixed-asset investment, may not be volatile but could stay within a range of softening growth.

Tang Jianwei, an economist at the Bank of Communications, said inflation may increase 1 percent in February, still a sign of deflation risks considering the holiday factor only had limited influence.

“Further policy easing is needed in light of deflationary pressure and the weakness in real activity,” Tang said.

The official Purchasing Managers’ Index, a gauge of operating conditions in the manufacturing sector, landed at 49.9 in February, indicating contracted industrial activities for the second straight month.

To bolster the economy and counter deflation risks, China’s central bank trimmed the one-year deposit and lending rates by 0.25 percentage points last week. It was the second interest rate cut in three months and followed a reduction of reserve requirement ratio, or the amount of funds commercial banks must set aside as reserves, in early February.

“The surprising timing of the rate cut is a reflection of the urgency for stimulation,” said Zhu Haibin, chief economist for China at JPMorgan. “We expect the government will most likely lower the growth target to around 7 percent this year from around 7.5 percent last year.”

Most provincial governments have lowered their growth target for this year in various degrees, while Shanghai has, for the first time, refrained from setting a growth target.




 

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