Early Look: China's Economy Post-Peak Shows Modest Growth

After a strong start to the year, China's economy is slowing at a pace economists say is looking quite moderate.

While an easing of factory inflation, slower industrial output and lower growth in profits are weighing on the economy, a still-robust property market and foreign trade are likely to keep growth humming along for now, economists say.

Following a slowdown in April, business activities, including industrial production, construction and retail, probably stayed steady in May, according to a survey of 11 economists by The Wall Street Journal.

"The big picture is that the economy peaked in the first quarter of 2017," said Larry Hu, an economist at Macquarie Capital Ltd. "But the slowdown has been quite modest."

According to the survey, industrial output, a rough proxy for economic growth, was likely up 6.4% in May from a year earlier, a little slower than April's 6.5%. Fixed-asset investment outside rural households, a gauge of construction activity, probably rose 9% for the January-May period, a tad faster than January-April's 8.9%. Retail sales may have climbed 10.8% in May, a tick off April's 10.9%.

China's economy grew 6.9% in the first quarter from the same period of last year--the fastest pace in 1 1/2 years--due to government's stimulus measures. Many economists saw April as a turning point as the effects of those pro-growth policies started to wane, setting the stage for continued slowing over subsequent months.

Adding some buoyancy to the economy has been a rebound in trade. Exports in May were likely up 7% from a year earlier, slowing from April's 8%, the survey of economists showed. Growth in imports likely also slowed, to 8.3% from near 12%, widening the trade surplus to an expected $47.8 billion in May, from $38.05 billion in April.

Exports, a drag on economic growth over the past few years, are shaping up to be a pillar this year, said Jianguang Shen, an economist at Mizuho Securities.

Inflation, however, isn't delivering the boost it did late last year and early this year. May's producer-price index, a gauge of prices at the factory gate, is expected to be up 5.5% from a year earlier, slowing from April's 6.4%, the survey showed. That would be the third straight deceleration from February's 7.8% peak, and, with slower gains in prices, economists have said industrial output is expected to soften in coming months.

"Easing industrial prices should dampen confidence in certain upstream and midstream industries," said Zhang Fan, an economist at RHB Group.

The consumer-price index for May was likely up 1.5% from a year earlier, the survey said, accelerating from April's 1.2%. Elevated nonfood prices, such as for health care and education, continued to outweigh declines in food prices, economists said.

China's foreign-exchange reserves probably rose for a fourth straight month in May on renewed yuan strength and Beijing's sustained controls on moving capital offshore, the poll of economists showed. The reserves are tipped to have risen by about $25 billion, to $3.055 trillion at the end of May from $3.030 trillion at end April.

The yuan is up 2.2% against the U.S. dollar this year after dropping 7% last year. Analysts attribute the surge in recent weeks to the central bank's heavy hand in supporting the yuan.

A recent tweak in how the central bank sets the yuan reference rate relieves the pressure of selling reserves to support the currency, said Larry Hu, an economist at Macquarie Capital Ltd.

(END) Dow Jones Newswires

June 06, 2017 03:57 ET (07:57 GMT)