The economic recovery stumbled in the first three months of 2013 due to slowing factory output and investment spending forcing analysts to start slashing full-year forecasts though the government said the outlook was favorable. Markets across Asia slumped Monday after China's growth unexpectedly slowed in the first quarter, adding to concerns that Asia's biggest economy may be losing steam after an earlier recovery in the year. The National Bureau of Statistics reported Monday that GDP grew 7.7 per cent over the previous year during the first quarter, which is slightly faster than the government's target of 7.5 per cent. However, it is well below the 8 per cent expected by economists. "Industrial production is unexpectedly weak and that's the source of weakness in GDP. Based on this, the consensus forecasts for GDP are going to be headed lower and we'll certainly be looking at ours," Tim Condon, head of Asian economic research at ING in Singapore, told Reuters.
RBS duly obliged, cutting its full year forecast to 7.8 per cent from 8.4 per cent before the data. "This is both due to the impact of the weaker start of 2013 and because the Q1 data shows slower quarter-on-quarter growth momentum than expected," Louis Kuijs, chief China economist at RBS in Hong Kong, wrote in a note to clients. His observation on quarterly growth was shared by others equally concerned about quarter-on-quarter expansion easing to 1.6 per cent in Q4 from 2.0 per cent in Q4.
Sheng Laiyun, spokesman at the National Bureau of Statistics which released GDP in a flurry of other data on Monday, told a news conference that such worries were unfounded. "China's economic fundamentals haven't changed. We are confident about future growth and optimistic about achieving this year's growth target," Sheng said, according to Reuters. China has set a 7.5 per cent GDP growth target for 2013, a level Beijing believes will create sufficient jobs while providing room to deliver structural reforms the government -- and international policy advisers -- believe are necessary to put growth on a more sustainable long term footing "Employment is very stable," Sheng said. "Stable employment is a basic indicator of China's economic stability," he added, quoting Ministry of Labour and Social Securities data showing that China created over 3 million new jobs in the first quarter.
China's lower than expected economic performance hit Asian markets. Chinese stocks in Hong Kong were the big losers, with the Hang Seng China Enterprises Index falling 2 per cent to 10440.76, outpacing a 1.4 per cent decline on Hong Kong's Hang Seng Index to 21772.67. In mainland China, the Shanghai Composite Index lost 1.1 per cent to 2181.94. The moves were larger in the commodities market, with gold dropping 3.6 per cent to $1447.20 an ounce, while spot silver slid 7.1 per cent to $24.26 an ounce. Further afield, the Australian dollar fell to US$1.0427. "It's a terrible combination for the (Australian dollar). First you had gold tumbling and on top of that you had the China GDP," said Sean Callow, senior currency strategist at Westpac Institutional Bank in Sydney, according to the WSJ.
In a sign that weakening economic recovery is affecting Chinese companies, Zoomlion Heavy Industry Science and Technology Co. fell 8.3 per cent in Hong Kong after the construction machinery manufacturer issued a profit warning for the first quarter. The company predicted a 60 per cent to 80 per cent on-year profit decline, citing a slow economic recovery. Other markets across the region were lower: Australia's SP/ASX 200 fell 0.9 per cent to 4967.90 and South Korea's Kospi Composite lost 0.2 per cent to 1920.45. The Nikkei Stock Average lost 1.6 per cent to 13275.66 in response to a yen that firmed after the Japanese market closed on Friday, when the greenback fell 1.3 per cent against the yen.
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