Surprise slowing in China felt quickly in stocks, commodities

China’s economic growth unexpectedly lost momentum in the first quarter as gains in factory output and consumption weakened, driving stocks and commodities lower on concern that global expansion will slow.

Gross domestic product rose 7.7 percent from a year earlier, the National Bureau of Statistics said yesterday in Beijing. That compares with the 8 percent median forecast in a survey of 41 analysts and 7.9 percent in the fourth quarter. March industrial production gained less than estimated while retail-sales growth matched forecasts.

Yesterday’s data add to concerns the global recovery is struggling, with the International Monetary Fund set to lower its forecast for U.S. growth and investor George Soros warning that Germany will probably be in recession by the end of September. Moderating inflation may give new Premier Li Keqiang more room to boost domestic demand as the euro-area debt crisis clouds the outlook for exports.

“The recovery will be a weak and short-lived one,” said Yao Wei, China economist at Societe Generale in Hong Kong. Fixed-asset investment growth, which trailed estimates, was the “biggest surprise,” especially given the quarter’s “fast” credit expansion, she said. “Now it seems some of the credit boost will only take effect later in the year.”

The statistics bureau characterized the economy in the first quarter as “stable,” with Sheng Laiyun, a spokesman, saying the expansion rate isn’t low compared with other nations. The nation’s new leadership is putting more emphasis on quality of growth, and urbanization will continue to create demand, Sheng said.

While the economy has had a smooth start to the year, China still faces a complex situation due to instability and uncertainty domestically and abroad, Li said in comments published Sunday by the official Xinhua News Agency.

China’s industrial output in March rose 8.9 percent, today’s report showed. That compares with the median estimate of 10.1 percent in the survey and a 9.9 percent pace in the first two months combined. Retail sales grew 12.6 percent, matching the median forecast. Fixed-asset investment excluding rural households in the first quarter increased 20.9 percent, against a median estimate of 21.3 percent and a 21.2 percent pace in the first two months.

The data reflect a slowdown in light industrial production, “weak” consumption partly affected by a government frugality campaign and export gains that aren’t as strong as customs figures suggest, said Wang Tao, chief China economist at UBS in Hong Kong. Even so, “we do not think the government should ease monetary policy further” because of “very rapid” credit growth and low interest rates, Wang said.

First-quarter expansion was lower than all except two analyst estimates out of 41 ranging from 7.5 percent to 8.3 percent. October-December growth showed the first acceleration in two years, up from the third quarter’s 7.4 percent rate. For 2012, expansion was 7.8 percent, the least since 1999.

Bloomberg