Consumption is holding up — at least for now — while investment and exports have already slowed, signalling the looming slowdown, Tao said.
“We think that gross domestic product growth has showed its strongest momentum on a sequential quarter-on-quarter basis for the time being, while the year-on-year growth pace should decelerate from previous quarters, Tao said.
He said the recent round of increases in bank’s reserve requirement ratios, interest rates hikes and tighter controls over bank lending in December had been effective in instilling a more cautious sentiment among China companies.
The December headline PMI, softened to 53.9, a drop of 1.3 percentage points from November’s level.
Still, Tao expects a gradual cooling rather than a sharp slowdown, as cooling growth “should provide a reason for Beijing to tighten not too aggressively,” he said.
However, the emerging outlook is far from clear as rival camps vie for influence over monetary policy.
The dovish camp will garner support for their position from December’s PMI, though it’s more likely, that inflation worries dominate the policy agenda, leading to “more aggressive tightening” in both interest rates and lending policies, Tao said.
Credit Suisse forecast that CPI will break above 6% by mid year, after cooling moderately during the January to March period.
China’s growth this year is expected at 9.2%, compared to 2010’s forecasted growth 10.1%, according to Credit Suisse’s estimates.
China’s economy may be on a cooling trajectory, having already experienced the high watermark of growth since the global crisis, according to Credit Suisse research released Monday.