China’s first quarter GDP growth slowed to 7.4% from 7.7% the previous quarter, mainly due to weaker real estate sector activities and weak exports, says UBS in a research report.
China’s property activity lost steam in the first quarter, with activity slumping across the board. Sales fell 3.8% from last year, completion declined 4.9%, and new starts contracted 25%.
Decelerating property activity dampened construction materials and machinery demand, curbing heavy industrial production. Sales of housing-related items such as furniture, decoration materials and automobiles were also affected.
For example, crude steel production growth slowed from 6.6% in the fourth quarter to 1.9% during the first quarter, and cement production from 9.9% to 3.6%. As a result of weak domestic and external final demand, corporate manufacturing investment slowed further from 18.5% to 15.2%.
Contrary to common belief, credit conditions was not the main factor behind slower growth during the first three months of the year, aruges the report.
Total social financing grew by almost 17% year-on-year in March, with strong RMB lending and entrusted loans, which partially offset weaker trust loans and corporate bonds issuance.
USB’s own estimate of credit conditions shows that credit growth actually picked up slightly. It is consistent with the slight easing of the People’s Bank of China’s policy stance from the fourth quarter’s tightening bias.
Lastly, the report says that after initiating several projects to stimulate the economy, the Chinese government may launch more programs to propel growth if needed.
UBS estimates that the recently announced measures including higher railway construction budget could deliver a modest 0.2 percentage point GDP growth boost.
If growth slows further, the government will have to deploy more measures including additional fiscal spending, quicker growth-enhancing reforms and a relaxation of property policies to defend its "lower bound" of "about 7.5%" GDP growth target.