China: the second quarter will be the weakest of this year

The Chinese economy in the second quarter will show a minimum growth rate of this year and rise in Q3 as government measures to stabilize the economic slowdown will play the role, according to Chen Yulu (陈雨露), the president of Renmin University and current adviser to the People’s Bank of China.

“The second quarter will be the lowest point this year,” said Chen at a forum in Beijing. “The overall annual growth rate will exceed 8 percent.”

China’s monetary authorities are trying to support the growth of its economy against the backdrop of the deepening crisis in Europe that affects the export and foreign investment, slowing the housing market and reducing demand for steel, cement and household goods. Government efforts are focused on the reduction of interest rates and bank reserve requirements, faster approval of investment projects and programs to enhance the promotion of sales of household goods.

Slower growth has exceeded expectations, said Chen. In Q1 China’s GDP growth fell to 8.1% from a year earlier, which was the fifth consecutive decline. Analysts at Bank of America expect that China’s GDP growth in Q2 will be from 7% to 7.5%. Bank of Credit Suisse Group AG predicts grew at 7.7% this year (the slowest in 13 years), which is associated with the weakness of exports, investment and corporate profits. Deutsche Bank AG expects China’s GDP growth by 7.9% this year.

China is likely to allow its yuan to fall against the U.S. dollar in order to avoid further downward pressure in its economy if the debt crisis in the euro area will lead to a sharp drop in the euro, said the Nobel laureate in economics Robert Mundell.

Decline of euro below 1.18 U.S. dollar will be a good opportunity for the Chinese government to replan its currency strategy against the U.S. dollar, as if the dollar starts to rise rapidly, and the Chinese yuan after it, such situation will lead to a new slowing down of Chinese economy.