A series of policy tightening measures and a deceleration in external demand could have put a damper on the country's major economic indicators in April, which are scheduled to be released Wednesday.

The growth in fixed-asset investment (FAI) is estimated to slow to 24.7 percent year-to-date in April from 25.0 percent in the first quarter, due to a deceleration in infrastructure, real estate and manufacturing.

Recent inventory data suggests that many manufacturing companies will begin inventory de-stocking in the second quarter, indicating that investment in inventory will soften further in the second quarter on weak growth momentum in domestic consumption.

Accordingly, industrial output is expected to slow to 14.6 percent (all year on year, unless indicated otherwise) in April, versus 14.8 percent YoY in March, spurred by a 0.4ppt (percentage point) decline in production PMI in the same month, reflecting weakening domestic consumption demand

New order PMI and production PMI may decline 1.4ppt and 0.4ppt to 53.8 percent and 55.3 percent, respectively, in April, indicating rising de-stocking pressure on slowing demand within the manufacturing sectors.

Retail sales, meanwhile, will accelerate slightly while export growth will slow down. Retail sales are estimated to grow 17.6 percent in April, versus 17.4 percent in March, boosted by nominal sales acceleration within the consumer staple segments. Export growth is expected to fall slightly to 32.6 percent in April, while import growth is estimated to rise to 34.4 percent. This will result in a small trade surplus of $146 million in April, a sharp decline compared with the $1.7 billion in April 2010.

Over the inflation frontline, the CPI is expected to remain high at 5.2 percent in April on food price stability and a pickup in non-food prices. Based on agricultural product price movements, the food CPI is expected to decline 0.5 percent month-on-month (MoM) in April and the non-food CPI to accelerate 0.2 percent MoM. Agricultural product price indices declined in March primarily due to moderation in vegetable prices. The PPI is expected to grow 0.6 percent MoM and 6.9 percent YoY in April, thanks to a lower comparison base on the same period in 2010.

Based on channel checks, both new bank loans and M2 growth are expected to rebound in April while remaining under the auspices of the People's Bank of China (PBoC).

New bank loans are estimated to increase 700 billion yuan and M2 growth to reach 16.7 percent in April. While bank loan increases are broadly in line with the PBoC's schedule for 2011, continued international capital inflows could boost M2 growth in the remainder of the second quarter.

To further ease inflationary pressure, the PBoC is expected to raise the benchmark interest rate one more time by 25bp in late May or possibly early June.

The central government is also expected to relieve some inflationary pressure caused by imports and allow the yuan to appreciate further against the US dollar in the remaining months of the year. However, the chance of seeing a one-off sharp appreciation in the Chinese currency in 2011 is remote.

Monthly forex reserves grew over $60 billion on average in the first quarter, implying that the yuan counterparty of forex increased by more than 400 billion yuan on a monthly basis in the first quarter. Sustained international capital inflows could prompt the PBoC to launch another hike in the reserve requirement ratio in May.

The author is an associate director and economist at CCB International Securities Ltd. The opinions expressed here are entirely his own.

(HK Edition 05/10/2011 page2)