Inflation and growth down on tightening
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China's economic growth fell to 10.1 percent in the second quarter and inflation declined to 7.1 percent in June, raising the likelihood of an easing in monetary policy. However, economists said any policy changes will be applied sector by sector and in the fourth quarter at the earliest. Gross domestic product grew 10.4 percent for the first half- year, down from 10.6 percent in the first quarter, after significant moderation in April to June, Beijing's National Bureau of Statistics said yesterday. Consumer price inflation also moderated in June to 7.1 percent, or 7.9 percent for the first half, thanks to falling food costs. "The volatility of overseas and domestic capital markets has affected the economy a lot, hampering exports and industrial sectors, but consumption and foreign direct investment remain strong," bureau spokesman Li Xiaochao said. He said the economy could maintain at least double-digit growth through the year to stay in fast-growth mode. "The inflation expectation was still strong, fueled by the rising international oil and food prices. The inflationary risks are still there," he said. However, in an interview with CCTV, NBS chief economist Yao Jingyuan said the downtrend in consumer prices seen since March will continue and even accelerate: "The cooling of GDP growth indicated the government's macroeconomic policy to prevent the economy from going overheated has paid off." JPMorgan economist Frank Gong said headline CPI peaked in February. "We expect further moderation in the 12-month pace of food price growth ahead, helped by favorable base effects, steadily increasing supply and another good harvest for the year," he added. But he also believes that in order to keep inflation expectations in check - one of the top priorities in the near term - macro policies should be stable, with selected easing in certain sectors. "Such as increasing export tax rebates to help exporters, and encouraging more SME loans, [and] measures to boost consumption," Gong said. He added that any easing of the tight grip on credit expansion is not likely until the final quarter of the year.
