China's unsteady economy seen holding April inflation in check

Subdued factory and investment growth probably capped China's inflation in April and depressed producer prices for a 14th consecutive month, a Reuters poll showed, clouding the outlook for the Chinese economy.

And risks that China's factory and investment growth in April may miss even conservative forecasts are mounting after surveys of the country's manufacturing and services industries cooled unexpectedly last month.

A median for forecasts by 27 economists showed the annual consumer price index ran at 2.3 percent in April, up from 2.1 percent in March but comfortably below the central bank's 3 percent forecast for 2013.

Producer price deflation is forecast at 2.3 percent compared to a year ago, the deepest in six months.

Analysts from Barclays said China's struggling exports sector and its fragile domestic demand have added to the problem of capacity under-utilization, and dampened producer prices.

"The manufacturing sector will face continued pressures from the uncertain external outlook and the modest domestic recovery, and painful adjustments given over-investment and over-capacity," economists from Barclays said in a note.

China's factory output is expected to have grown 9.5 percent in April from a year ago, recovering slightly from a seven-month low hit in March. Fixed-asset investment is forecast to have expanded 21 percent in the first four months from a year earlier, up a shade from 20.9 percent between January and March.

But these estimates may prove optimistic.

Two separate surveys of Chinese factories showed growth slowed in April after new export orders fell, reinforcing doubts about the health of the world's second-biggest economy after its disappointing first quarter.

China's services sector, having hitherto shown greater resilience than factories, has also faltered.

A private survey on Monday showed growth in the services industry in April plumbed 20-month lows after new orders fell to levels last seen in August 2011. An official survey also showed new orders dropping below historical averages.

The dour surveys followed China's first-quarter growth report that showed its economy stumbling. Growth unexpectedly moderated to 7.7 percent from 7.9 percent the previous quarter, hurt by a surprisingly sharp factory cooldown.

Yet most analysts are hopeful China's economic recovery is merely delayed and has not reversed, with a credit boom underpinning growth. Credit ballooned nearly 60 percent in the first quarter from a year ago, fuelling future inflation risks.