Economic Report: China?s economy grows more than expected

By Sarah Turner, MarketWatch

SYDNEY (MarketWatch) ? China?s economy grew by 7.9% in the fourth quarter compared to a year earlier, with the data beating economists? expectations and feeding into optimism that world?s second-largest economy was on an improving trajectory.

The gross-domestic-product growth represented an increase from 7.4% growth in the third quarter and 7.6% growth in the second quarter. The Chinese government has a target of 7.5% annual GDP growth.

For 2012, Chinese GDP growth came in at 7.8%, down from 9.3% recorded in 2011.

The data confirm ?that the worst is probably over for the economy and that China has avoided a hard landing,? IHS Global Insight senior economist Xianfang Ren said after the release of the data.

Economists had been expecting fourth-quarter growth of 7.8%, according to separate surveys by Dow Jones Newswires and Reuters.

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Other data out on the Chinese economy?s December performance, also out Friday, presented a similarly strong picture.

Industrial output in December rose 10.3% from the year-earlier period, in line with economists? expectations and higher than the 10.1% rise recorded in November.

Non-rural fixed-asset investment climbed 20.6% for all of 2012, also in line with expectations but marking a slight slowdown from the 20.7% increase seen in the January-to-November number. Fixed-asset investment, often used as a gauge of Chinese real-estate development spending, is presented as a year-to-date total, without a monthly breakdown.

December retail sales were up 15.2% compared to a year ago, well above the 14.9% forecast in a Reuters survey and higher than November?s 14.9% advance.

Asia stocks retained early gains after the release of the data. Read: Asia stocks rise, Japan surges

Economists react

The stronger GDP result wasn?t surprising to analysts at Capital Economics, who said that October and November activity data indicated the Chinese economy would rebound.

Still, the analysts said that although ?they think the recovery has a while yet to run,? they were also cautious about getting too enthusiastic over the Chinese growth trends.

?Markets now seem to be embracing the idea that China?s economy is regaining much of its former vigor. As such, there must be a good chance of disappointment if incoming data fail to meet expectations,? the Capital Economics analysts said.

That risk will likely increase as 2013 progresses, they said, if economic recovery remains centered on infrastructure and real-estate investment rather than consumption. ?Sustained stronger growth in China would require a turnaround in household spending,? the economists said.

Ren at IHS noted that the Chinese economy had ?quite a narrow escape,? in 2012 after quarterly growth dipped to as low as 7.4% in the third quarter and seven straight quarters of deceleration by then which Ren said was a stretch ?even longer than that after the Asian financial crisis.?

IHS are projecting around 8% growth for China thjs year amid flattish export growth, a figure Ren believes will be the ?new normal? for the Chinese economy.

Dariusz Kowalczyk at Credit Agricole sees 2013 growth for the Chinese economy at 8.5% but expects year-on-year growth to top out in the first quarter and decelerate thereafter.

?It seems that economic momentum is peaking,? he said, with the slight slowdown in fixed-asset investment growth ?confirming our view that the government is gradually removing stimulus measures.?

Still, that implies that there will be less demand-pulled inflationary pressures in the economy ?and less need to tighten monetary policy,? he said, adding that situation should prove positive for market sentiment.

Sarah Turner is MarketWatch's bureau chief in Sydney. Follow her on Twitter @SarahTurnerMKTW.

Source: http://www.marketwatch.com/news/story.asp?guid=%7B88A9BBF4-6100-11E2-AD22-002128040CF6%7D&siteid=rss

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