China is set to reveal its weakest quarter of annual growth in nearly three years on Friday, with investors fretting the economy could cool even further in coming months and further dampen global growth.
Economists polled by Reuters expect China delivered a fifth successive quarter of slowing annual growth in the first three months of 2012 of 8.3 percent, leaving the economy on track for its weakest full year of expansion in a decade.
The forecast is a whisker above the 8.1 percent posted in the second quarter of 2009, when policymakers in the world's second-biggest economy were rolling out 4 trillion yuan ($635 billion) of stimulus to escape the grip of a financial crisis that had driven global trade - to which China's growth is levered - to a virtual halt.
"Underlying economic indicators are more volatile and mixed than before, suggesting structural changes may be adding mist to already opaque cyclical visability," Jeremy Stevens, China economist at Standard Bank in Beijing, said.
"Overall conditions seem to have stabilised, but it wouldn't take much to push sentiment in the wrong direction," he wrote in a note to clients.
First-quarter GDP data will be released at 0200 GMT, along with March readings on industrial output, urban investment and retail sales.
China's economy expanded by 8.9 percent in the last quarter of 2011, the slowest since the third quarter of 2009, with full-year growth at a two-year low of 9.2 percent.
Economists polled by Reuters expect growth in 2012 to ease further to 8.4 percent, which would be its slackest since 2002.
The downside risks have intensified after patchy data since the start of the year, raising fears that the downward drift will extend into the second quarter.
Global demand for China's exports may remain sluggish into mid-year, with much of the euro zone seen in recession and weak job data last week reviving concerns about the strength of the U.S. economic recovery.
The World Bank added to the unease on Thursday when it cut its 2012 growth forecast for China to 8.2 percent from the 8.4 percent it had been expecting in November and said a rebound might not begin before the third quarter of the year.
The Bank's quarterly China update report cited slack foreign demand and a government-induced slowdown in the property market as key restraints on a recovery.
ING's Asian economics team earlier this week advised clients to hedge exposure to emerging markets, saying there was a risk of near-term underperformance relative to developed markets, detecting a souring of near-term sentiment around prospects for China.
But March money supply data released on Thursday suggested that a recovery might be gaining traction, with new loans made in the month topping 1 trillion yuan for the first time since January 2011, coming in about 25 percent ahead of expectations after two straight months of underperformance.
"The new loans number is very strong. It signals that loan demand has rebounded and shows that the economy is turning," Zhiwei Zhang, chief China economist at Nomura in Hong Kong, told Reuters.
Zhang said lending and money supply data, coupled with a bounce in the index of China leading indicators calculated by the Organisation for Economic Cooperation and Development (OECD), suggests growth was likely to rebound in coming months.
The OECD leading indicator has successfully forecast previous turning points in China's business cycle.
"Overall this is another signal that reinforces our view that Q1 is the bottom of the cycle and that momentum is picking up," said Zhang, forecasting Q1 GDP growth of 7.8 percent and full year expansion of 8.2 percent.
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