China’s economic growth continues to slow. Between January and March it expanded at the lowest pace in a year and a half.
Beijing quickly unveiled new pro-growth measures including cutting the amount of cash some village banks have to hold in reserve at China’s central bank so that money could bolster the agriculture sector.
In the first three months of this year the economy expanded by 7.4 percent, down from 7.7 percent in the fourth quarter of 2013 and 7.8 percent in the quarter before that.
There were already signs China’s economy was losing more momentum than expected with exports in March down for the second month in a row and imports dropping sharply.
Still economists, like HSBC ‘s John Zhu, are not disturbed. He said China is still on track to meet his bank’s predictions: “Our full year 2014 forecast actually hasn’t changed this year. We’ve been at 7.4 percent for the whole of the year and so we don’t think today’s number has a material impact on that. So we’re still fairly comfortable with 7.4 percent for the year.”
However the manufacturing sector continues to struggle. Activity data for March, which was released at the same time as the GDP report, showed that factory output growth was not as strong as expected. It hit a near five-year low of 8.8 percent.
On the plus side, for a government trying to rebalance the economy by stimulating domestic demand, retail sales were up 12.2 percent, slightly above forecasts.
The services sector, which includes retail, made up 49 percent of GDP in the first quarter, 4.1 percentage points more than the industrial sector.
Growth in retail bodes well for the labour market as the services industry is now the biggest employer in China.
“The resilience of the relatively labour-intensive services sector has helped the labour market hold up reasonably well in the first quarter, even though it cooled,” Louis Kuijs, RBS economist in Hong Kong, said in a note.