China growth slowdown and fall in US industrial production drive fears

http://www.theguardian.com/world/2015/apr/15/china-growth-slowdown-fall-in-us-industrial-production

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Fears over the health of the world’s two biggest economies have surfaced after weak industrial production data from the US followed evidence of a growth slowdown in China.

Financial markets are betting on fresh stimulus from the People’s Bank of China in Beijing and a delay in raising interest rates from the Federal Reserve in Washington after the downbeat news.

US industrial production fell by 0.6% in March, a worse figure than Wall Street had been expecting even after allowances were made for a harsh winter.

Chris Williamson, chief economist at financial data provider Markit, said the US was going through its softest growth patch since early 2009 when the economy was in the midst of its worst downturn since the Great Depression of the 1930s.

“It’s becoming increasingly clear that US economic growth slowed sharply in the opening quarter of the year,” Williamson said.

“This slowdown effectively kills off any chance of policy makers hiking interest rates in June, and adds to fears about the corporate outlook. Worries have intensified that, not only are lower oil prices damaging the energy sector, but also that the dollar’s strength is acting as a drag on the economy, hitting overseas earnings in particular.”

Until recently, Wall Street had been braced for the Fed to start nudging up the cost of borrowing in June. But recent data has shown jobs growth and retail sales to be much less buoyant than anticipated.

Rob Carnell, an economist at ING, said the latest New York Empire manufacturing survey, which came out shortly after the industrial production data, pointed to further weakness ahead.

“Markets are no longer even talking about a June rate hike as a possibility. With data like this, it is not surprising. And if things don’t shape up soon, then even September is going to look a hawkish call.”

Earlier, China announced that its economy grew by 7% in the first quarter of 2015, its lowest since the 6.6% recorded in the first three months of 2009.

Analysts are divided over whether China is poised for a so-called hard landing as it seeks to rebalance its economy towards consumer-driven growth after the credit-fuelled, investment-led recovery for the recession of 2008-09.

Amid some scepticism about the reliability of China’s official economic data, Diana Choyleva of Lombard Street Research said she estimated that China had contracted by 0.2% between the fourth quarter of 2014 and the first quarter of 2015.

Other analysts think China will avoid a hard landing. Even so, markets assume the Chinese central bank will cut interest rates and ease restrictions on bank lending in order to underpin growth.