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Chinese Weaker Economy Growth Raises Concern About Global Economic Strength

 April 13, 2012 10:10 AM

Chinese gross domestic product witnessed 8.1 growth during the first quarter, but it came lower than predicted. Yet it is above the country's stated target of achieving yearly growth to limit its dependence on external factors. Still, weak economic activity in the second largest economy raises a question about the strength of economic resilience following the European debt crisis that has been hurting sentiments.

China's economy advanced 8.1 percent in the first quarter on the year-on-year basis, a data from National Bureau of Statistics indicate. This is lower than the growth achieved in the fourth quarter of 2011. The latest quarterly GDP is the weakest in the last eleven quarters and came in below economists predictions of 8.4 percent upside. On a quarter-on-quarter basis, economy has advanced 1.8 percent, according to the statistical office.

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Exports witnessed slower activities due to worldwide economic uncertainty amidst European debt crisis. Exports accounts for more than 30 percent of China's GDP growth and slower activity would no doubt impact its economy. This is the precise reason why its Premier had reduced the nation's economic target to 7.5 percent from over 8 percent so as to cut down its dependence on external factors and instead stimulate domestic demand.

Only yesterday, World Bank has reduced its economy forecast for China to 8.2 percent from 8.4 percent for 2012 citing a marked slow down in investment growth thus hurting consumption and weak demand from external factors. Asian Development Bank had also slashed its outlook for Chinese economy to 8.5 percent from 9.1 percent. Other global lending agencies have also cut down their GDP projection for China for 2012. Yet, China's Information Center believes that its economy can achieve 8.5 percent growth in 2012 though temporary slowdown could be witnessed during the first two quarters.

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While the first quarter GDP might have come below economists expectations, it is well above the nation's target for a 7.5 percent growth. But to achieve this sustained growth is necessary. What is causing concern to economists is that quarter-over-quarter GDP upside is slowing to the weakest. Both the fourth quarter as well as the first quarter economy was considered weakest and if the trend continues, there is every possibility that GDP growth for the second quarter may drop below 8 percent. For a long time, China has been delivering GDP growth of around 10 percent and the latest is certainly a disappointing one.

However, economists and experts are pushing for relaxing of monetary policy to spur growth in the wake of global slow down. Loosening of monetary policy is necessary to stimulate domestic demand.

Earlier this week, two economic reports restricted policy makers to loosen its money policy to spur growth. First it was inflation that came in more than estimated and the second widening of trade surplus for March. These two positive factors nearly shut the doors for any possible relaxation on monetary policy. The latest GDP numbers may force policy makers to have a rethink on current monetary policy. China has assumed greater importance in world economic map for its size and opportunities for growth. Therefore, its sustained growth is vital for any strong global economic activities.

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