China's recovery still on shaky grounds: analyst

Inflation likely to edge up to 2.4%.

According to Barclays Research, in the coming week, China will release economic data for December and Q4 GDP. The data are likely to be mixed, supporting the firm's view that the recovery is still not on a solid footing. It forecasted slightly below-consensus industrial production and investment growth and slightly above-consensus retail sales growth.

"We maintain our policy views for a neutral monetary policy and modestly expansionary fiscal policy to support growth of ~8% in 2013," it further said in a report.

Barclays' earlier forecast of 5% export growth may be subject to some small upside surprise in view of the robust December Taiwan export growth figure released this week. However, the ~50 PMI new export orders suggest that external softness will continue to weigh on China’s growth recovery in 2013.

Here's more from Barclays Research:

We expect import growth to edge higher to 2.5% on slowly recovering domestic demand.

We forecast CPI inflation to rise to 2.4%y/y as cold weather has led to a surge in vegetable prices, while pork prices continued to rise on holiday demand. PPI deflation is to ease further to -2% y/y, as indicated by the PMI input cost index.

The December new loan figure is likely to reach ~ CNY550bn, bringing the year’s total to CNY8.3trn in 2012 (2011: CNY7.5trn). The government will need to balance bank lending, shadow banking activities, and capital market financing in 2013.

We maintain our Q4 GDP growth forecast of 7.8%, which will bring full-year growth to 7.7% in 2012, compared with 9.3% in 2011. The official NBS PMI suggests some softening in growth momentum in December.

We forecast the y/y IP growth to ease modestly to 9.9%. We expect the FAI growth to end the year at 20.5% (2011: 24.5%) on softening infrastructure investment, implying growth of 19%y/y versus 21% in November. We expect consumption to hold up with nominal retail sales to rise further to 15.3%y/y.

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