More Stimulus Likely As China Data Disappoints

More evidence that the Chinese economy is slowing, leading to forecasts of either another rate cut (the 4th since November) or the third easing in bank reserve ratios, to boost money available for lending.

After the weak trade data (with exports and imports weaker than expected) and producer price deflation deeper than forecast, China’s industrial output, retail sales and urban investment all weakened last month.

The news saw the Aussie dollar lose ground from just on 80c to around 79.60c in afternoon trading in Australia yesterday.

China’s factory output rose at an annual rate of 5.9% in April compared with the same period last year, below forecasts and another reason why the government cut rates for a third time in six months on Sunday night.

The April reading was just ahead of the 5.6% rate in March and under the 6% forecast from economists. Industrial output increased 0.57% in April from March, when output rose 0.25% from February.

Fixed-asset investment, one of crucial drivers of growth in China rose an annual 12% in January-April from the same period a year ago, down from the 13.5% growth rate in the March quarter.

That was the lowest growth rate in 14 years.

And retail sales rose 10% last month from a year ago, missing forecasts for a 10.5% rise and down from March. That was the lowest growth rate since 2006.

Retail sales increased 0.74% in April from March. In March, retail sales rose a revised 0.64% from the preceding month.

China retail sales make 9-year low

Data last Friday showed Chinese exports falling 6.4% in April, while imports plunged 16.2%.

China’s inflation figures underlined growing sluggishness of demand in the economy: the consumer price index rose just 1.5%, half the government’s 3% annual target rate, while producer prices fell by 4.6% in in April for the 38th consecutive month in the world’s manufacturing floor.

But don’t tell Chinese investors. The Shanghai market is up more than 35% this year (but down half a per cent yesterday), while the more speculative Shenzhen Composite has jumped 73%, and was also weaker yesterday.