Calls for stimulus as Chinese economy slows down

A slowdown in industrial output and retail sales has seen China’s economy stumble in the second half of 2012, alarming investors who had hoped the world’s second largest economy would be immune to the troubles affecting the US and Europe.

The economy slowed to 7.6 percent for the second quarter of this year, the lowest rate China has seen since 2009. Industrial output slumped to 9.2 percent in July, despite forecasts that it would rise from the 9.5 percent in June.

In a note to clients, Nomura economist Zhang Zhiwei said: “Weak industrial production growth is likely to trigger stronger policy easing. The possibility of an interest-rate cut has increased.”

After the economic crisis in 2009, China responded with a mammoth stimulus package that boosted growth. It is unlikely, however, that Premier Wen Jiabao will sanction anything like the $585bn package this time, although some form of stimulus is expected to help aid the recovery.

The Chinese administration has been eager to stay away from large stimulus packages in recent years, with more of a focus on steady growth, something which some analysts believe will happen now. Yiping Huang, Barclay Capital’s chief economist for Asia, told Reuters: “The recovery will be very modest – more like stabilisation and gradual improvement.”