FIRST QUARTER GROWTH SLOWS UNEXPECTEDLY
China's annual consumer inflation slowed to 2.1 percent year on year in March, down from the 3.2 percent registered in February (see Chart 1). Slower inflation is a good sign for China's economy, as it helps the central bank manage expectations of inflation. Most of the drop in inflation can be attributed to a moderation of food prices after February's Lunar New Year seasonal spike. Meanwhile, wholesale prices remained in negative territory, as the Producer Price Index (PPI) fell to 1.9 percent (see Chart 2). The PPI has been in negative territory since March 2012, showing that China's on-going economic recovery is moving at a really slow pace.
Modest manufacturing pick up
China's official Purchasing Managers' Index (PMI) for the manufacturing sector rose to 50.9 in March, indicating a rebound after activity appeared to slow during the first two months of the year (see Chart 3). A PMI reading above 50 indicates an expansion in manufacturing activity from the previous month, whereas a reading below 50 indicates a contraction. March's numbers were the highest since April of last year, and marked the sixth consecutive month the PMI has stayed above 50, indicating continued expansion. However, economists remain cautious on the outlook for Chinese growth, saying the acceleration is mainly due to seasonal factors, and the rise in the March readings was subdued compared to that seen in previous years.
Imports surge
Retail sales were up 12.6 percent year on year in March, a greater increase than the 12.3-percent rise in the January-February period (see Chart 4). Meanwhile, China's trade unexpectedly swung to produce a small trade deficit of $884 million in March. Imports surged in March, rising 14.1 percent to reach an all-time high of $183.1 billion and signaling that domestic demand was gathering the steam needed to drive economic recovery (see Chart 5). Exports rose a more subdued 10 percent to reach $182.2 billion after rising 21.8 percent in February (see Chart 6). Although China runs a large trade surplus with the rest of the world, March's trade figures are not that unusual as manufacturers regularly stock up on imported raw materials that are assembled into exports later in the year. China's Ministry of Commerce has pledged to unveil fresh measures this year to boost imports, in line with Beijing's long-term goal of balancing its trade structure to pursue more sustainable growth by tilting the economy more toward domestic consumption.
Economic growth slips
China's economic growth slowed unexpectedly in the first quarter, raising concerns that a recovery that started in the second half of last year is already losing steam. GDP growth eased back to 7.7 percent from the 7.9-percent rate set in the final quarter of 2012. A surge in liquidity and strong export data had fueled expectations that growth would accelerate again in the first quarter due to policy actions aimed at boosting economic momentum. First quarter data comes as China has pumped record amounts of credit into the economy in an attempt to buoy growth. The weak data reduced the chances of China's policymakers tightening monetary policy to rein in inflation and rising
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