Chinese growth figures trigger an outbreak of jitters in markets By PERRY GOURLEY Published on Saturday 14 April 2012 00:00 STOCK markets fell sharply yesterday as weaker-than-expected growth figures from China prompted fears that a slowdown in demand would hold back global recovery. China's economy - the world's second-largest - grew at its slowest rate in nearly three years in the first quarter of 2012, with the muted reading raising investor concerns that a slide of more than a year has not bottomed out yet and that more policy action would be needed to halt it. The annual rate of Chinese GDP growth fell to 8.1 per cent from 8.9 per cent in the previous three months - well shy of economists" forecasts. Coupled with continuing concerns over Spain's rising debt costs, the benchmark FTSE 100 index shed 1 per cent while in New York, the Dow Jones index closed down 1.05 per cent. Other major European stock markets, including those in France and Germany, also fell sharply as Spain's ten-year cost of borrowing rose back towards 6 per cent, signalling growing fears over the country's creditworthiness. But China's stock market rallied despite the disappointing data on hopes that the poor first-quarter showing would be enough to prompt more assistance from Beijing such as easier lending terms or more government spending. China has been hit by a drop in demand for exports in key markets including Europe and the US, while domestic demand has also proved sluggish. Economist Kevin Lai, of Daiwa Capital Markets, said: "We are slightly disappointed by the figures. The main downside was with exports and some in terms of consumption. The GDP data was among a flurry of other Chinese indicators which showed that March industrial output expanded 11.9 per cent, retail sales rose 15.2 per cent and quarterly fixed asset investment - one of the principal drivers of the economy - grew 20.9 per cent. While Western markets dropped in response to yesterday's figures, many UK economists said a slowdown in Chinese growth was welcome. Tim Ohlenburg, senior economist with the Centre for Economics and Business Research, said: "China is learning to walk with its own momentum rather than running to satisfy external demand. Slower GDP growth is a sign of this. The rest of the world should be glad because the slower it goes, the less likely China is to stumble and crash, crushing global growth in its fall. Martin Arnold, senior analyst at ETF Securities, pointed out that the outlook for China remained robust and was "far from worrying." "While overall GDP rose, the measured slowdown in economic activity is an intended consequence of policy tightening in 2011," he said. Tighter policy was aimed at keeping growth at a sustainable level, while also preventing rampant inflation. Inflation is now below target 4 per cent level, giving policymakers room to loosen monetary policy to re-stimulate demand and support the economy if needed. On Thursday, a report from the World Bank had warned that China's economy may slow further in the coming months as consumption growth slows and external demand remains weak. The bank cut its growth forecast for the Chinese economy for 2012 to 8.2 per cent from its earlier projection of 8.4 per cent. GDP growth forecasts, Q1 2012 CHINA: 8.1 per cent (confirmed figure) RUSSIA: 4.2 per cent UK: 0.5 per cent GERMANY: 0 per cent