Judging from the economic data released so far this year, China's first-quarter GDP growth rate will probably be about 7.3 percent, said DBS Bank (Hong Kong) Ltd on Thursday.
Considering the central government's determination to achieve structural reform, the outlook for consumption and a lukewarm export outlook, the bank said 7.5 percent GDP growth will be a "hard nut to crack" this year.
Lily Lo, an economist at the bank, said: "Premier Li has made it clear that 7.2 percent GDP growth is the bottom line to secure employment . It looks like structural reform is a more important task than growth this year for the central government. It will not be a surprise to see GDP growth sit at 7.3 or 7.4 percent by year-end."
Macroeconomic indicators are certainly signalling economic headwinds. The National Bureau of Statistics on Thursday said that total profits for large industrial enterprises grew 9.4 percent year-on-year in the first two months to 779.31 billion yuan ($126.6 billion). The growth rate was 2.8 percentage points lower than the same period in 2013. Large enterprises are defined as those with at least 20 million yuan in annual revenue
Also during the first two months, industrial ouput expanded 8.6 percent, the lowest level since the financial crisis. Retail sales totaled 4.23 trillion yuan, up 11.8 percent, the slowest rate in at least 12 months.
The value of exports declined 18.1 percent in February, confounding expectations of a 6.8 percent gain.
In response, many analysts have adjusted their forecasts for China's growth. For example, Gold man Sachs Group Inc cut its full-year GDP growth forecast from 7.6 percent to 7.3 percent.
Lo said that growth momentum is being affected by the central government's "low" investment target. The target for growth in fixed-asset investment this year was set at 17.5 percent by the National People's Congress, the top legislature, earlier this month.
"This is fairly low for China," Lo said, adding that the average rate for the past few years had been about 24 percent. Last year, such investment grew 19.6 percent.
The NPC said retail sales will pick up 14.5 percent this year, compared with 13.1 percent in 2013. But Lo said the sector faces challenges.
"This might be too optimistic in the short term. It takes longer to boost domestic consumption ," she said. Lo said that shoppers are reacting to reforms of the pension system and social welfare programs, as well as the urbanization process, where policies will take at least three to five years to achieve a real change.
"The central government's heavy hand on corruption will continue to affect high-end consumption, especially businesses in the food and beverage sector." Exports will be "lukewarm" in the short term, Lo added.
"Although demand from Europe an and US buyers is gradually picking up, we are not expecting solid growth until the second half, especially on the high comparison base of the first half of last year."
However, an economist from the Australia and New Zealand Banking Group Ltd said growth prospects won't be "harsh" if monetary policy is eased.
"As indicated by the HSBC Holdings Plc purchasing managers' index, China's economy" shows signs of bottoming out, said Liu Ligang, greater China chief economist of the bank, adding that data should turn better later in the year, although the first quarter will be "poor." The bank estimates first-quarter GDP growth of 7.2 percent.
HSBC released the flash China PMI for March on Monday, showing manufacturing activity at an eight-month low of 48.1. The new export orders sub-index, however, was 51.5, a level indicating expansion.
"It depends on whether the government can follow up. We expect a more accommodative monetary policy," Liu said. He added that the central bank could cut the reserve requirement ratio with "window guidance" pushing support for smaller companies while applying strict loan quotas to industries with excess capacity.
