China's economy grew at its weakest pace in two and a half years in the latest quarter and it appeared headed for an even sharper slowdown in the coming months as export demand fades and the housing market falters.
The fourth-quarter year-on-year growth of 8.9 per cent, although slightly stronger than the 8.7 per cent that economists polled by Reuters had predicted, may give Beijing yet another reason to gently ease monetary policy, most likely by reducing the amount of reserves that large banks must hold.
The data released on Tuesday may not satisfy investors, who were looking for figures that were either weak enough to provide a clear-cut case for policy easing or strong enough to allay fears that the world's second-biggest economy might unravel.
"The slowdown is not scary, so we are not going to get massive policy easing," said Kevin Lai, an economist with Daiwa in Hong Kong.
Shanghai stocks pared gains in low-volume, volatile trading after the data was released. The euro and Australian dollar both extended gains against the U.S. dollar as investors took some solace in the fact that China's growth rate was a bit faster than expected.
With Europe in danger of slipping into a recession and U.S. growth looking lacklustre, China's role in the global economy is magnified.
Although economists widely expect China's 2012 growth will be the weakest in a decade, a more pronounced slowdown would put a major drag on already shaky global growth.
The fourth-quarter growth rate was the slowest pace since the second quarter of 2009, when the global economy stumbled out of a deep recession. It also marked the fourth straight quarter in which growth slowed down.
Ma Jiantang, the head of China's statistics agency, said China's growth was likely to slow further as Beijing tries to restructure the economy away from exports and towards domestic consumption - something the United States and other trading partners have long pressed China to do.