China Data Watch-China Q2 economic growth seen easing slightly

* What: Chinese Q2 GDP, June data

* When: Tentatively scheduled for July 19

* Growth to slow a touch, but tightening still in view

BEIJING, July 12 (Reuters) - China’s economy probably slowed slightly in the second quarter in response to a host of tightening measures, but inflationary pressures and rapid growth in money supply could herald fresh steps in coming months.

The median forecast of 14 economists polled by Reuters was that gross domestic product grew by 10.8 percent from a year earlier in the April-June period.

That would represent a slight slowdown from 11.1 percent annual growth in the first quarter, but it would still depict an economy that is surging ahead on the back of booming investment, sturdy consumer spending and surging exports.

The National Bureau of Statistics is tentatively scheduled to issue data for June and the second quarter next Thursday, though the date and time could change.

“I see no signs of an economic slowdown in the second quarter, based on the figures from the first five months,” said Zhao Qingming, an economist with China Construction Bank in Beijing.

Data from recent months have shown the economy firing on all cylinders, with capital spending accelerating and factories struggling to keep up with demand from both home and abroad.

Figures released this week showed that the trade surplus in June hit a monthly record of $26.9 billion -- something economists said underpinned the likelihood of a strong GDP figure for the second quarter.[ID:nPEK52067]

Annual growth in the broad M2 measure of money supply picked up in June to 17.1 percent from May’s 16.7 percent, mirrored by the swelling of the world’s largest foreign exchange reserves to $1.33 trillion at the end of the first half. [ID:nL11801311]

Following are the forecasts for data due to be released next week. (percentage change from a year earlier):

FORECASTS EARLIER DATA Q2 2007 Median Low High Q107 ^Q406 ^Q306 GDP 10.8 10.5 11.3 11.1 10.4 10.6 June 2007 Median Low High May Apr Mar CPI 3.5 3.2 4.4 3.4 3.0 3.3 PPI 2.9 2.6 3.0 2.8 2.9 2.7 Industry output 17.6 16.9 18.5 18.1 17.4 17.6 Urban investment~ 26.0 25.0 26.3 25.9 25.5 25.3 Retail sales 15.9 15.1 16.5 15.9 15.5 15.3

* Not all economists provided forecasts for each indicator.

~ Fixed-asset investment in urban areas, year to date.

^ Figures for growth in the third and fourth quarters of 2006 do not reflect revisions to 2006 GDP growth released on July 11.


Economists said their interpretation of the second-quarter GDP data and that of policy makers could be influenced by revisions to 2006 growth made on Wednesday.

The statistics agency revised up real economic growth for last year to 11.1 percent from 10.7 percent. It did not provide a breakdown of changes to quarterly growth figures.[ID:nPEK80555]

“If last year was 11.1 percent, then the authorities might feel a bit more comfortable publishing a similar 11 percent in the last quarter,” said Ben Simpfendorfer, strategist with Royal Bank of Scotland in Hong Kong. “But that’s quite speculative.”

Simpfendorfer said that given the unexpectedly large trade surplus in June, GDP growth in the second quarter could surprise on the upside. He had forecast a 10.8 percent rise.

Analysts said that there remained plenty of other reasons why the central bank might extend its campaign to rein in liquidity, which has included four interest rate rises and eight increases in banks’ required reserves since April 2006.

Pointing to money and credit data released on Wednesday, Qu Hongbin, chief China economist with HSBC in Hong Kong, said:

“All this points to further monetary tightening in coming months.”

Qu expects at least two more interest rate increases in the coming months, as well as further rises in the proportion of deposits that banks have to hold in reserve.

Jun Ma, chief China economist with Deutsche Bank in Hong Kong, said that annual consumer inflation could also accelerate significantly in June, possibly exceeding 4 percent, as food prices had been rising more quickly than initially expected.

“We believe that, as a result, public pressure for the government to address the issue of negative real interest rates will intensify,” Ma said in a note to clients, adding that that made it more likely that Beijing could reduce the tax on interest income and possibly raise interest rates again in the near term.

Additional reporting by Zeng Xiangjin