China GDP Slowest on Record, But Upturn in Sight

China's economy slowed in the first quarter to its weakest pace on record, but an improvement in data for March offers tentative signs that the worst may be over for the world's third-largest economy.

Annual gross domestic product growth fell to 6.1 percent, down from 6.8 percent in the fourth quarter of 2008 and slightly below economists' forecasts of a 6.3 percent rise. That marks the weakest growth since quarterly records began in 1992.

Growth was dragged down largely by a sharp fall in exports in the first three months, but was offset somewhat by the implementation of the government's 4 trillion yuan ($585 billion) stimulus package, which helped prompt a surge in lending in the first quarter.

Annual growth in urban fixed-asset investment surged unexpectedly to 28.6 percent in the first three months, while industrial output growth rebounded to 8.3 percent in March, from a record low 3.8 percent in the first two months of the year.

"The overall national economy showed positive changes, with better performance than expected," Li Xiaochao, spokesman for the National Bureau of Statistics, said at a news conference on Thursday.

Still, Li said the drop in exports was leading to falling corporate profits, reducing government revenues and increasing difficulties in creating jobs.

"The national economy is confronted with the pressure of a slowdown," he said.

"Still Okay"

Commodities markets, which had already braced for a slowdown in the first quarter, took the news in stride. Oil and copper prices were little changed after the figures released, holding on
to earlier gains.

The yen gained against the dollar and other major currencies after the data. Currencies such as the Australian dollar and sterling had been bought against the yen ahead of the data on speculation it might be higher than forecast.

"Of course this number is a record low, but everybody expected that. It's still an okay number which shows China is bottoming out," said Sebastien Barbe, senior economist with Calyon in Hong Kong.

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"The previous number was only slightly above this, so that means the deceleration is not so strong and the policy response -- a lot of bank lending and investment by state-owned companies -- is helping contain the slowdown."

Deflationary pressures also appeared to ease. Consumer prices fell 1.2 percent in March from a year earlier, in line with expectations and a less marked fall than in February.

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