China's October data to show economy still listless

BEIJING (Reuters) - A deluge of China data over the coming week is likely to show a persistent cooldown in the world's second-largest economy as domestic demand softens, reinforcing views that authorities may need to do more to fight slackening growth. A tepid performance in October would point to a further loss of momentum in the world's second-largest economy as it heads into the fourth quarter, putting Beijing's official target of around 7.5 percent for 2014 at greater risk. Fixed-asset investment, an important driver of growth, likely grew at its slowest pace in nearly 13 years between January and October, rising 15.9 percent in that period from a year ago, a Reuters poll of 22 economists showed. That would mark a deceleration from 16.1 percent in January-September and would be a level not seen since December 2001, as a slowdown in China's housing market, tighter credit conditions and subdued domestic demand drag on the broader economy. "October data may point to further downside risks," economists at Citi said in a note. "We do not see a quick turnaround in property investment although the recent loosening of the mortgage policy may help avoid a slump." In a bid to stem the slide in the property market, China cut mortgage rates and down payment levels for some home buyers in late September for the first time since the 2008/09 global financial crisis. But economists are divided over whether the measures will have much of an effect, pointing to massive inventories of unsold homes hanging over the market. Official and private surveys of factory and service sector activity earlier this week showed demand at home and abroad continued to cool last month and the labour market remained under stress, while adding to fears that many companies are being starved of credit as banks grow more reluctant to lend. Reflecting lacklustre domestic demand, China's import growth probably eased to 5.5 percent in October from a year earlier, after an unexpectedly buoyant 7 percent expansion in September. Export growth also likely cooled to 10.6 percent on an annual basis in October, down from 15.3 percent in September. Some economists believe the September trade data may have overstated China's export strength. Fake invoicing of trade flows intended to sneak speculative cash into China probably inflated export growth in both September and October, they said. Highlighting sluggish demand, producer deflation was expected to have persisted for the 32nd consecutive month in October, with the producer price index seen falling 2 percent, sapping corporate confidence and making companies more reluctant to invest. Annual consumer inflation is seen at 1.6 percent in October, steady from September and way below the annual government target of 3.5 percent, the poll showed. Inflation cooled more than expected in September to the weakest since January 2010, adding to investors' fears of global deflationary pressures. Credit conditions may remain challenging, with growth in credit and money supply expected to have flagged. The amount of new loans disbursed by banks was estimated to have fallen to 650 billion yuan (66.32 billion pounds) last month, from September's 857.2 billion yuan. The M2 money supply is seen up 12.9 percent in October compared to a year ago, unchanged from September. Two of China's top banks reported the biggest quarterly increase in bad loan levels in two years in third-quarter results posted last month, while deposits in the overall banking system shrank for the first time on record, further limiting their ability to lend. SIGNS OF RESILIENCE There may be some signs of resilience in the October readings, however. Growth in factory output and retail sales likely held steady, in a possible sign that the economy is stabilizing albeit at subdued levels. Economists expect factory output likely grew 8 percent in October, unchanged from September's growth and off a six-year low of 6.9 percent hit in August. Retail sales were seen growing 11.6 percent in October from a year earlier, unchanged from September. "We believe that the contribution from investment to economic growth will ease in future, and the government will pay more attention to the pivotal role of consumption," Shen Jianguang, an economist at Mizuho, said in note. China's annual economic growth slowed to 7.3 percent in the third quarter, the weakest pace since the global financial crisis. Policymakers have rolled out a series of measures since spring to bolster growth. China approved new railway lines for the second time in two weeks on Wednesday, a move that would lift investment. Many analysts believe Beijing will roll out additional modest measures in coming months, but they are divided over whether it would take more forceful action such as cutting interest rates unless there was a risk of a sharper slowdown. (Reporting By Xiaoyi Shao and Koh Gui Qing; Editing by Kim Coghill)