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Policy loosening 'likely' to prompt economic growth

China Daily

Policymakers may resort to slight monetary loosening in the second quarter to stimulate growth, economists said.

They made the prediction after newly released figures showed that the rate of inflation eased in March while industrial growth faced challenges.

The consumer price index, the major gauge of inflation, grew 2.1 percent in March from a year earlier, down from 3.2 percent in February, the National Bureau of Statistics said on Tuesday.

The latest figures pulled down the average CPI in the first three months to 2.4 percent, 1.1 percentage points lower than the government's annual target.

Food prices, which account for 30 percent of the CPI calculation, decreased 2.9 percent, the largest monthly fall since July 2003.

"The price of meat has dropped at least 10 percent since the dead pig incidents and the recent bird flu cases," said 50-year-old Shao Mingfang from Shanghai.

More than 10,000 pig carcasses were found last month floating in the Huangpu River, the major source of drinking water in Shanghai.

Lu Zhengwei, chief economist at the Industrial Bank, said consumer prices are likely to remain low in the second quarter because of sufficient market supplies.

The producer price index in March decreased 1.9 percent from a year earlier, the 13th consecutive drop, reflecting operational difficulties and pressure on profit growth in the industrial sector amid weak market demand.

The PPI declined 1.63 percent in February and 1.64 percent in January.

"We are struggling just as most small and medium-sized companies saw thin profits due to the slow recovery of the slump in Europe," said Guo Junwei, owner of a clothes factory in Taizhou, Zhejiang province.

Li Daokui, an economics professor at Tsinghua University and a former adviser to the central bank, said inflationary pressure won't be high in the short term and the downside risk of economic growth should be addressed.

"We must be alert to a rapid slowdown," Li said, adding that he foresees a macroeconomic policy adjustment in the second quarter to support growth.

Xiang Songzuo, chief economist at Agricultural Bank of China, said the manufacturing industry is particularly fragile.

"The sector has not shown obvious signs of recovery, while excessive production and sluggish demand are taking their toll," Xiang said.

"The policy focus should move from containing inflation to shoring up the real economy," Xiang said.

On Tuesday, the Asian Development Bank predicted GDP growth of 8.2 percent in China this year, up from 7.8 percent in 2012, boosted by public spending and consumption.

The bank said GDP growth may slow to 8 percent in 2014, as the government may be keen on solving environmental pollution and narrowing the income gap.