“VERY BEARISH”
Ratings agency Fitch this month downgraded China’s sovereign credit outlook to negative, warning of “increasing risks to China’s public finance outlook” as the country contends with more “uncertain economic prospects”.
Analysts say state pledges of support for the property sector are yet to sway the market or consumers.
“Home buyers remain very bearish,” Gene Ma, head of China research at the Institute of International Finance, told AFP.
Sluggish consumption is another bugbear.
Last month, retail sales – the main indicator of household consumption – increased 5.5 per cent year-on-year, down from the previous month despite covering a holiday period that typically sees a spike in spending.
“A lack of domestic consumer demand will remain a drag” on growth despite an improvement on the industrial production front, Heron Lim, an analyst for the Moody’s rating agency, told AFP.
Fears that China could slip back into deflation was also a major drag.
Consumer prices fell for several months from August, before rising 0.7 per cent in February.
But the consumer price index edged up by only 0.1 per cent on-year last month, renewing deflationary fears.
While deflation suggests goods were cheaper, it poses a threat to the broader economy as consumers tend to postpone purchases, hoping for further price reductions.
A lack of demand can then force companies to cut production, freeze hiring or lay off workers, while potentially also having to discount existing stocks – dampening profitability even as costs remain the same.
“Inflation is a fever of an economy, while deflation is a cancer,” Ma said. “A prolonged deflation will hurt consumption and investment demands.”
Manufacturing was one bright spot in the first quarter, the analysts said, pointing to the strong official data in March.
“Our proprietary indicators suggest more robust manufacturing activity than construction activity,” James Seddon of Goldman Sachs told AFP.
“Relatively positive industrial production and export news mean that growth will come in steady this quarter,” Lim at Moody’s told AFP.
Still, he warned that more government support would be needed to prop up growth in the medium term, as there were “few policy support measures targeted at supporting domestic consumption directly”.
Source: CNA
