China's economic recovery unexpectedly stumbled in the first three months of 2013 with slowing factory output and investment spending forcing analysts to start slashing full-year forecasts despite official insistence that the outlook was favourable.
The world's second-biggest economy grew 7.7 percent in the first quarter from a year ago, slower than 7.9 percent hit in Q4 2012, below the Reuters consensus forecast of 8.0 percent and confounding expectations of a surprise uptick that emerged after surging credit and export data were published last week. Commodities from crude oil to copper, wheat and corn all fell after the data, share prices were knocked lower and the Australian dollar slid as investors repriced expectations of import demand from China.
"This number may well explain why there was so much liquidity support in Q1," Tim Condon, head of Asian economic research at ING in Singapore, told Reuters. Data released alongside GDP showed industrial output grew 8.9 percent in March from a year ago, below expectations of 10.0 percent in a Reuters poll. China produced 2.14 million tonnes of crude steel per day in March, down 3.2 percent from the previous month, with mills still cautious about the prospects of a seasonal pick-up in demand.
Monthly output was still 6.6 percent higher than the same period last year, but product stockpiles soared to record levels in March. The disappointing production numbers, which also showed China's implied oil demand falling to its lowest in seven months, led to a broad-based sell-off of risky assets, with Shanghai steel futures down more than 3 percent and Brent crude futures LCOc1 dropping more than $2 to hit a fresh nine-month low. RBS cut its full-year GDP growth forecast to 7.8 percent from 8.4 percent before the data.
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