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China Economic Growth May Slow to 10-Quarter Low as Worse to Come

China’s economy probably grew the least in 10 quarters in the last three months of 2011 and may cool further as export demand slumps and officials prolong a campaign against property bubbles. Gross domestic product, the value of all goods and services produced, rose 8.7 percent from a year earlier, the slowest pace since the second quarter of 2009, according to the median forecast of 26 economists surveyed by Bloomberg News. The data, and indicators for investment, retail sales and industrial production, are scheduled for release tomorrow in Beijing. The fourth straight quarterly slowdown in the world’s second-largest economy adds to concerns that global expansion is faltering, with theInternational Monetary Fund warning of near- zero growth in Europeand a “substantial” cut to its global forecast. China’s exports rose the least in two years in December and inflation eased to a 15-month low, bolstering the case for Premier Wen Jiabao to loosen policies. “The worst is yet to come and more easing measures will be in the pipeline in coming months,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., who previously worked at the IMF. “Increasing downside risks in China will hurt the outlook for other economies especially commodities exporters such as Australiaand Brazil.” Growth may “trough” at 7.5 percent in the three months through March and 7.6 percent in the second quarter, Zhang said. That may prompt the central bank to “front-load” policy easing into the first half, with one interest-rate cut in March and three reductions to banks’ reserve requirement ratios, he said.

Worsening Crisis

Asian stocks dropped ahead of a debt sale today by France afterStandard & Poor’s stripped the country of its top rating and cut eight other European nations, stoking concern the region’s debt crisis may worsen. The MSCI Asia Pacific Index (MXAP) fell 1.3 percent as of 3:50 p.m. in Tokyo. The measure added 2.2 percent last week. In China, shares fell, dragging the benchmark index lower for a fourth day. The Shanghai Composite Index dropped 1.5 percent at 2:51 p.m. The yuan fell to 6.3165 per dollar on concern Europe’s crisis will slowAsia’s biggest economy. In Australia, home-loan approvals rose in November for an eighth straight month as the central bank’s first interest-rate reduction in two years helped attract first-time buyers. The number of loans granted to build or buy houses and apartments gained 1.4 percent, the most since May, after a revised 0.8 percent advance in October, a report showed today.

Yen Strength

Elsewhere in Asia, Japan’s machinery orders rebounded in November from a month earlier by more than economists estimated, signaling the world’s third-largest economy is showing some resilience to the yen’s strength and the global growth slowdown. India’s inflation slowed to the lowest level in two years, the commerce ministry said in a statement in New Delhi today. The benchmark wholesale-price index rose 7.47 percent in December from a year earlier, compared with a 9.11 percent gain in November. The median of 25 estimates in a Bloomberg News survey was for a 7.4 percent gain. In Europe today, France will offer the first gauge of the impact of the Standard & Poor’s ratings cut when it sells as much as 8.7 billion euros ($11 billion) in bills. Italy is due to report final inflation data for December. Prices, based on European Union measurements, probably rose 3.7 percent from a year earlier, matching the preliminary report on Jan. 4. Germany will report wholesale prices for December. In November, prices rose 4.9 percent from a year earlier and 0.7 percent from the previous month. Today is a public holiday in the U.S.

Hoarding Cash

The People’s Bank of China last month allowed lenders to set aside less money as reserves for the first time in three years to encourage lending. The move may have added 350 billion yuan ($55 billion) to the financial system, according to UBS AG estimates. China’s money-market rate rose the most since September on Jan. 13, and gained a further 59 basis points today to 5.4833 percent, as banks hoarded cash to meet increased withdrawals before the weeklong Lunar New Year holiday that starts Jan. 23. The central bank halted sales of bills and repurchase contracts at the end of December to ease the crunch and added funds to the financial system for the third week, according to data compiled by Bloomberg. The IMF is scheduled to release revised global projections next week. Olivier Blanchard, the Washington-based fund’s chief economist, said in a Bloomberg Televisioninterview Jan. 6 that with European growth “very close to zero at this point,” there would be a “substantial” cut to the fund’s most recent 2012 global expansion estimate of 4 percent.

Smallest Gain

China’s industrial production probably grew 12.3 percent in December from a year earlier, according to a separate Bloomberg survey of economists, the smallest gain since August 2009.Fixed-asset investment excluding rural households probably expanded 24.1 percent for the whole of 2011, little changed from 2010’s pace. Retail sales, which include spending by government, companies and households, advanced 17.2 percent last month from a year earlier, a separate poll showed. China’s growth is moderating as Europe’s debt crisis and weak U.S. expansion hurt exports and Wen’s campaign to rein in inflation and property prices damps output. In October, he said the government will “fine-tune” economic policies as needed amid a deteriorating global outlook and reiterated that pledge as recently as Jan. 3, describing business conditions this quarter as “relatively difficult.”

Auto Sales Trail

Alcoa Inc. (AA), the largest U.S. aluminum producer, this month predicted growth in demand for the metal in China, the world’s biggest user, may slow to 12 percent this year from 15 percent last year and estimated capacity in the country will be curtailed by 1.1 million tons. Signs that the world’s biggest consumer of steel and copper is cooling include the smallest increase in imports and exports in December for two years, excluding holiday distortions. Growth in auto sales slowed last year, trailing expansion in the U.S. for the first time in at least 14 years. A deeper recession in Europe, which may cause a sharper slump in demand for China’s exports, and a “disorderly correction” in the property market are the biggest risks to the economy this year, said Chang Jian, a Hong Kong-based economist at Barclays Capital Asia Ltd. The world’s largest exporter may see shipment growth halve this year from a 20 percent pace in 2011, while property investment, which accounts for about a fifth of the nation’s fixed-asset spending, may expand at half last year’s rate, according to Chang.

Purchase Restrictions

China’s home prices fell for a fourth month in December compared with the previous month after the government reiterated plans to maintain curbs that include higher down-payment and mortgage requirements, according to SouFun Holdings Ltd., the country’s biggest real-estate website owner. Cities including Beijing and Shanghai have said they will maintain home purchase restrictions this year. Nomura’s Zhang sees “ripple effects” from the cooling property market, as sliding sales dent housing investment and construction, crimp demand for raw materials such as steel and cement, and hurt developers’ earnings.

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