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China first-quarter GDP likely nudged higher, recovery on track

A street vendor pushes his mobile fruit stall on a pedestrian overpass in Beijing March 22, 2013. REUTERS/Kim Kyung-Hoon
A street vendor pushes his mobile fruit stall on a pedestrian overpass in Beijing March 22, 2013. REUTERS/Kim Kyung-Hoon

BEIJING (Reuters) - China's annual rate of economic growth likely nudged higher in the first three months of 2013 versus the last quarter of 2012, with fixed asset investment and factory output growth in double digits cementing a mild rebound, according to a Reuters poll.

Evidence of a second successive quarter of rising year-on-year growth will further reinforce the view of investors that China's government has successfully engineered a recovery from 2012's 13-year low of 7.8 percent that is gaining traction.

Meanwhile with the annual rate of consumer inflation expected to ease to 2.4 percent from February's 10-month high of 3.2 percent, the urgency for policymakers to begin tightening monetary conditions at an early stage in the recovery cycle is reduced.

"We estimate GDP grew at a faster year-on-year pace of 8.1 percent in Q1," analysts at China International Capital Corp (CICC) wrote in a note to clients, outlining their calls for the March data cycle.

That is above the 8.0 percent consensus of 19 economists polled by Reuters and is driven largely by expectations of a stronger than anticipated contribution to growth of real estate sales.

CICC analysts calculate that property sales will contribute about 1 percentage point more to growth in Q1 than in Q4 last year, offsetting slowing growth in wholesale, retail and other industries.

Retail sales growth has been curtailed in recent months since the government launched an internal austerity drive at the end of last year, designed to cut down excessive banqueting and gift-giving that is often linked to corruption.

Economists in the Reuters poll expect retail sales to have expanded by 12.5 percent in March, slightly higher than the 12.3 percent rate seen in the combined January-February period, but still around 2-3 percentage points lower than typically seen through 2012.

Fixed asset investment, closely tied to real estate transactions, has seen a gentle upswing since around the middle of last year when China's Communist Party government decided to take action to underpin economic growth hit by faltering demand for the country's exports.

Gross exports account for around a third of economic output in China and a drop off in orders as the United States and the European Union - the country's two biggest customers - dealt with their own economic problems was felt through the Chinese factory sector.

Fixed asset investment is forecast to have expanded at an annual pace of 21.3 percent year-to-date in March, a whisker higher than the 21.2 percent pace in the first two months of 2013.

The downside risks to economic growth, however, are similarly tied to real estate, investment in which was worth 13.8 percent of GDP in 2012 and directly impacts around 40 other business sectors in the economy.

Rising real estate prices, alongside rising fixed asset investment, have sparked concerns that home costs could start to spiral out of control and lead the government to declare that a raft of measures to calm frothy prices must be strictly enforced.

That has led investors to start fretting that tighter property policies could constrain the overall economy.

That is a significant risk given that construction was the main driving force behind a rise in the fast-growing services sector of the economy in March, according to a survey of purchasing managers.

The real estate crackdown was one of the key reasons cited by Bank of America/Merrill Lynch in late March when it cut its Q1 annual growth forecast to 7.9 percent from 8.3 percent.

"At present we see more downside than upside risk to our 7.9 percent year-on-year Q1 forecast," the bank wrote in a note to clients, outlining its March data forecasts.

(Reporting by China Economics Team; Writing by Nick Edwards; Editing by Sanjeev Miglani)

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