China’s economic growth dipped below 7% for the first time since the global financial crisis on Monday, hurt partly by cooling investment, raising pressure on Beijing to further cut interest rates and take other measures to stoke activity.

China growth falls to 6.9 per cent

The world’s second-largest economy grew 6.9% between July and September from a year ago, the National Bureau of Statistics said, slightly better than forecasts of a 6.8% rise but down from 7% in the previous three months.

That hardened expectations that China would avoid an abrupt fall-off in growth, with analysts predicting a more gradual slide in activity stretching into 2016.

“Underlying conditions are subdued but stable,” said Julian Evans-Pritchard, an analyst at Capital Economics in Singapore. “Stronger fiscal spending and more rapid credit growth will limit the downside risks to growth over the coming quarters.”

Chinese leaders have been trying to reassure jittery global markets for months that the economy is under control after a shock devaluation of the yuan CNY=CFXS and a summer stock market plunge fanned fears of a hard landing.

Some analysts were hopeful that the third-quarter cooldown could mark the low point for 2015 as a burst of stimulus measures rolled out by Beijing comes into force in coming months, but muted monthly data for September kept such optimism in check.

“As growth slows and risk of deflation heightens, we reiterate that China needs to cut reserve requirement ratio (RRR) by another 50bps in Q4,” economists at ANZ Bank said in a note to clients.

“Looming deflation risk suggests that the People’s Bank of China will also adjust the benchmark interest rates, especially lending rate, down further.”

In its battle against China’s worst economic cooldown in more than six years, the central bank has cut interest rates five times since November and reduced banks’ reserve requirement ratios three times this year.

Despite the spate of easing, Monday’s GDP reading was still the worst since the first quarter of 2009, when growth tumbled to 6.2%.

Policy support

While Chinese officials put a brave face on China’s economic woes, describing the slowdown as being “reasonable”, senior leaders have occasionally voiced worries.

President Xi Jinping told Reuters in an interview over the weekend that the government has concerns about the economy and was working hard to address them.

Policymakers think they can stem a rapid rundown of the country’s foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year’s growth target of about 7%, sources involved in policy discussions say.

But key parts of the economy are still losing steam.

Factory output in September rose 5.7% from a year ago, missing forecasts for a 6% rise, and fixed-asset investment (FAI) climbed 10.3% in the first nine months, below estimates of 10.8%.

September retail spending alone bucked the trend, growing at an annual rate of 10.9%, slightly beating forecasts for 10.8%.

“The overall downturn pressure on the Chinese economy is still huge,” said Zhou Hao, a senior economist at Commerzbank in Singapore, who expects government will lower the annual growth target in its next five-year plan at the end of this month.

The latest Reuters quarterly poll showed economists expect the central bank will cut interest rates by another 25 basis points (bps) and lower the amount banks must hold as reserves by 50 bps by year-end.

The same poll predicted economic growth of 6.8% in the fourth quarter, easing to 6.7% in the first of 2016.

China’s consumer inflation cooled more than expected in September, while producer prices extended their slide to a 43rd straight month, highlighting the urgency for the central bank to tackle deflationary pressures.

To shore up growth, the government has quickened spending on infrastructure and eased curbs on the ailing property sector. The latter have helped revive weak home sales and prices but have not yet reversed a sharp decline in new construction.

Data released separately on Monday showed China’s government spending surged almost 27% in September from a year ago.

Some market watchers believe current growth is much weaker than government figures, though officials deny allegations that the numbers are inflated.

Despite weak exports and imports, factory overcapacity and a cooling property market, Beijing reported annual economic growth of 7.0% in the first two quarters, in line with its full-year target.

However, some economists think the statistics may be underestimating strong consumption and service sector growth, putting too much weight on the cyclical and structural weaknesses in manufacturing.

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