The momentum of the nation's economic growth is weakening, sapped by slowing industrial output as well as a drop in domestic consumption and imports. However, fixed asset investment growth and exports remain strong, as indicated by the latest official figures for the month of April.

The growth in fixed-asset investment (FAI) accelerated during the month but the pace of industrial output slowed. Despite a slower 24.6 percent growth in manufacturing investment year-to-date for April versus a 24.8 percent year-to-date increase in March - the FAI for April rose 25.4 percent year-to-date versus a 25.0 percent year-to-date rise in March.

The acceleration in FAI growth was primarily attributable to a pickup in investments in agriculture, real estate and the services industries. Real estate investment, in particular, saw strong growth of 34.3 percent year-to-date in April versus a 34.1 percent year-to-date gain in March. This was partly due to an increase in the construction of government-supported low-cost housing projects.

However, I expect real estate investment to slow substantially to 25.0 percent year-to-date in the third quarter of this year on the back of a sharp decline in floor space starts since January.

Industrial output growth slowed to 13.4 percent year-on-year (YoY) in April from 14.4 percent in March, reflecting weakening domestic consumption demand.

Retail sales posted a lower-than-estimated growth of 17.1 percent in the past month, reflecting continued weakness in consumer discretionary sales, as evidenced by the 0.25 percent YoY decrease and the 5.1 percent month-on-month (MoM) decline in the volume of automobile sales.

The disappointing growth in retail sales was due to a substantial deceleration in sales of automobiles, construction & decoration materials, and petroleum products. Major consumer staples, including food & beverages and clothing & cosmetics, posted stronger growth in April.

The trade surplus surged to $11.4 billion in April despite a slowdown in export growth. The significant improvement in net exports was underpinned by a decline in the import volume of major commodities, including iron ore, crude oil, copper and other major metals.

Export growth slowed to 29.9 percent YoY and 2.3 percent MoM in April, while imports saw YoY growth moderate to 21.8 percent YoY but decline 5.2 percent MoM.

Import growth is expected to weaken further in May on declining domestic demand and moderating international commodity prices, with the trade surplus likely widening to $17 billion in May.

CPI spiked 5.3 percent YoY in April but slowed 0.1 percent MoM, reflecting a 0.4 percent moderation in agricultural product prices and a 0.4 percent MoM rise in non-food prices. Agricultural product price indices have been declining since late March, primarily due to a moderation in vegetable prices.

I am looking for non-food prices to moderate on a month-on-month basis in May, given that PPI growth eased from 7.3 percent in March to 6.8 percent in April.

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

(HK Edition 05/20/2011 page2)