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POLL-Weak factory output anchors dreary China data

Published 12/08/2008, 01:22 AM
Updated 12/08/2008, 01:25 AM
NWG
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* What: Chinese November economic indicators

* When: Dec. 10-16, starting with trade and PPI on Wednesday

* Industry output may be lowest since 1999; inflation to drop

By Simon Rabinovitch and Zhou Xin

BEIJING, Dec 8 (Reuters) - China's economy probably weakened across the board in November, with factory production leading the slide and inflation also quickly losing pace, a Reuters poll shows.

The depth and suddenness of the slowdown have surprised those who thought China was relatively immune to a global downturn and have stirred the government into action to prop up the economy.

A survey of 30 analysts points to deepening gloom from the data for November, with the economy struck by both faltering external demand and sluggishness at home, especially in property.

Imports, exports, retail sales, investment, industrial output and consumer and producer price inflation are all seen weakening.

The government has announced 4 trillion yuan ($586 billion) in stimulus spending between now and 2010, but woes in the real estate market, export sector and factory production may be outstripping Beijing's efforts to revive activity.

"It is possible that an increasingly market-driven economy corrects faster than the fiscal package can be implemented," Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said in a note to clients.

Industrial output is forecast to have expanded 7.1 percent from a year earlier, the lowest since October 1999.

"While a weakening of industrial production data is likely to be widely expected already, the magnitude of the slowdown might still surprise the market on the downside," Yu Song, an economist at Goldman Sachs, wrote in a research note.

DEFLATION RISK?

Consumer and producer price inflation are set to continue their fall from peaks earlier this year. While authorities can strike once-soaring prices from their list of worries, the plunge in inflation could spell more trouble on the horizon.

"The slowdown in November CPI/PPI inflation proves our view that China faces increased deflation risk due to the bursting of global commodity price bubbles and pressure from unemployment and overcapacity in the accelerated economic downturn," China International Capital Corp economists said in a research note.

Consumer prices inflation is forecast to have eased to 3.0 percent last month, its slowest since April 2007 and well below the 12-year high of 8.7 percent in February.

Producer price inflation is also likely to have weakened markedly, dropping to 4.4 percent, its slowest since October 2007 and down from a 13-year high of 10.1 percent in August.

A bleak preview of China's November data came last week from a pair of manufacturing surveys that plumbed record lows as new orders, especially from abroad, tumbled.

That should show up in the trade figures, with export growth forecast at 15 percent from a year earlier, its slowest since February, when the Chinese Lunar New Year disrupted business.

Indeed, a newspaper reported at the weekend that preliminary customs data suggest export growth could have shrunk from the year-earlier level in November for the first time in seven years.

China is still expected to notch up a massive trade surplus, the second biggest on record at $32.4 billion, but that would just reflect the even sharper slowdown in import growth, another indication of the economic slowdown.

The dreary numbers could stiffen the government's resolve to breathe life back into the economy. After a slew of interest rate cuts, tax breaks and the huge stimulus package, many in the market are looking for Beijing to weigh in again.

"We continue to expect that Chinese policy makers will respond aggressively, with the declared aim of keeping growth from slipping much below trend," J.P. Morgan economists said in a note to clients.

The November statistics are due this week and next, starting with producer prices and trade on Wednesday.

Following are forecasts from 30 economists polled by Reuters for the main indicators for November (expressed as percentage change from a year earlier; trade surplus in billions of dollars):

Due Median Range Pvs Yr ago PPI Dec 10 4.4 3.3-6.6 6.6 4.6 CPI Dec 11 3.0 2.5-4.0 4.0 6.9 Trade surplus~ Dec 10 32.4 28.0-35.0 35.2 26.3 Exports Dec 10 15.0 5.0-21.2 19.2 25.3 Imports Dec 10 12.0 8.0-25.0 15.6 25.5 M2 money supply ^ 15.0 14.3-16.0 15.0 18.5 Yuan loans ^ 15.0 14.6-16.0 14.6 17.0 Retail sales Dec 12 20.5 17.5-23.0 22.0 18.8 Industry output Dec 15 7.1 4.0-10.0 8.2 17.3 Fixed investment* Dec 16 26.9 26.0-29.0 27.2 26.8

Notes:

^ No fixed time for money supply; Dec. 15 at latest;

* Fixed-asset investment in urban areas, year to date;

~ Trade due on Dec. 10, but could come earlier;

Not all economists gave forecasts for each indicator. (Additional reporting by Langi Chiang and Zhang Shengnan; Editing by Alan Wheatley)

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