Weakness in China and India augur more global woe

Dismal data from China and India on Friday may signal a further weakening of the global recovery, undermining hopes the dynamic emerging economies of Asia can help prop up growth.

China reported its industrial production rose 9.3 per cent from a year earlier in April, below expectations and down from nearly 12 per cent in March. Investment and retail sales also slowed, though easing inflation offers leeway for fresh moves to boost growth.

India's industrial output fell 3.5 per cent in March from a year earlier on weak manufacturing and investment. Output for the fiscal year ending in March rose 2.8 per cent, down from 8.2 per cent the year before.

The anemic indicators suggest Asia's ability to counter slowing growth in Europe may be limited. It also shows that the brief burst of vitality partly fueled by European stimulus late last year is likely wearing off.

"It's possible we're seeing the tailwind fall out of that," said Tony Nash, managing director at IHS Global Insight in Singapore. "We've been looking for more easing. It might start any time given these numbers."

The figures come a day after China announced that its trade surplus widened in April as imports barely budged, sharpening fears the economy is not doing enough to stimulate domestic demand and counter a slowdown.

Already, commodity prices are falling as China's slowdown bites into demand for oil, industrial components and consumer goods at a time when U.S. and European growth are weak.

Domestic demand worries

Friday's data are especially troubling because they indicate weakening domestic demand in India and China, markets many had looked to hopefully as bastions of growth in the faltering global economy.

"Things look very shaky in Europe and the U.S. economy is decelerating. The last thing we need is for the emerging world to downshift. Unfortunately the data today points in that direction," said Frederic Neumann, co-head of Asian economics research at HSBC in Hong Kong.

"We fear that without further stimulus, India and China will continue to slow."

China's economy grew 8.1 per cent in the first quarter of the year, a still robust rate but its slowest pace since 2009 and below the previous quarter's 8.9 per cent.

Friday's news dashed hopes the slowdown might have bottomed out.

China's leaders face a challenge in keeping politically sensitive inflation under control while spurring growth. Growth has fallen steadily since 2010 as Beijing tightened lending and investment curbs to cool an overheated economy and surging inflation, so slowing output and investment figures are not all that surprising, Nash said.

The stimulus versus inflation dilemma is more acute for India, where the central bank faces enormous political pressure to stoke growth, despite persistent inflation and soaring deficits.

"It is very disappointing," Chakravarthy Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said of Friday's data. "One had not expected such a sharp decline."

Concerns about governance and policy uncertainty are weighing on investment, while India's twin current account and fiscal deficits have alarmed economists and punished the rupee.