China GDP growth slowed further to 7.0% y/y in Q1, with few signs of a quick turnaround. Sluggish investment seems to have been the main reason for decelerating growth. Year-to-date fixed asset investment (FAI) growth has fallen steadily in the past 12 months, from 17.6% y/y in March 2014 to 13.5% y/y in March this year.
Forward-looking indicators do not bode well for a quick turnaround. Historical patterns suggest the services industry weighting in terms of total GDP tends to spike in Q1 but falls thereafter. For the property sector, new home starts and land acquired by developers plummeted, suggesting little appetite to boost investment amid rising home inventories. Funds secured for investment also decelerated significantly, weighing on investment.
"We expect renewed policy support to meet the growth target. Fiscal policy is likely to be more proactive from now, and we expect one rate cut and one reserve requirement ratio (RRR) cut by end-June and another RRR cut in H2. We do not expect the authorities to resort to currency devaluation to support growth." says Standard Chartered
