China GDP growth at 6.8% as crisis bites

By Geoff Dyer in Beijing

Published: January 22 2009 02:25 | Last updated: January 22 2009 05:49

China’s economic slowdown deepened in the last quarter of 2008, with economic growth falling to an annual rate of 6.8 per cent in the face of slumping exports and a weak housing market.

The news came as the Bank of Korea undershot market estimates by reporting that gross domestic product contracted by 5.6 per cent in the final quarter of last year compared with the third quarter, pushing the country closer to its first recession since the Asian financial crisis. Exports from Asia’s fourth-biggest economy slumped 11.9 per cent in the final quarter.

The Bank of Japan on Thursday cut its growth forecast for the economy, saying GDP was likely to shrink 1.8 per cent in the year to March 31 and contract 2 per cent the following year. The BoJ had previously forecasts growth of 0.1 per cent and 0.6 per cent, respectively. The central bank, however, kept interest rates unchanged at 0.1 per cent and said it would consider buying corporate bonds to help ease credit strains for companies.

China’s National Bureau of Statistics said that the economy expanded by 6.8 per cent in the last quarter of the year compared to the same period in 2007, the weakest pace of growth in seven years. For the year as a whole, the economy grew 9 per cent, down from the revised 13 per cent growth rate in 2007.

The steep slowdown is likely to have a significant impact on much of the rest of Asia, which relies heavily on demand from China, and has also raised the prospect of widespread unrest as a result of job losses.

“This confirms that the economy has decelerated rapidly from its 2007 peak,” said Ben Simpfendorfer, economist at RBS in Hong Kong. He added that the headline figure probably exaggerated the actual growth rate, partly because of problems with the national accounts data. He is forecasting growth of only 5 per cent this year.

Peng Wensheng, economist at Barclays Capital, estimated that after taking into account seasonal adjustments, the economy had barely grown at all in the fourth quarter compared with the third quarter, although he expects some pick-up in the first three months of this year.

Industrial output increased by 5.7 per cent in December, the lowest figure in nearly a decade, while electricity generation fell by 7.9 per cent, an indication of the sharp slump in heavy industry.

Ma Jiantang, head of the NBS, said the economy had been hit hard by the global financial crisis but said he was confident China could still achieve the target of 8 per cent growth this year. He said that in recent weeks there had been a rebound in the sales of certain goods including cars and clothes, while bank lending had also increased rapidly.

“We still need to wait and see” if these indicators represented a recovery, he said, “but they are like sunshine in a cold winter, light at the break of a dark dawn”.

Additional reporting by Christian Oliver in Seoul

Copyright The Financial Times Limited 2009