China's economy to continue to moderate: report

Upcoming results will show China's economy continued to weaken in August due to the government's caution in one-off stimulus plans and the sluggish recovery of the country's trading partners, a new report by the United Bank of Switzerland Limited (UBS) has predicted.

The Consumer Prices Index (CPI), a main gauge of inflation, will show a rebound in August of 2 percent, up 0.2 percentage points from the previous month, driven by growth in food prices, the UBS said in its weekly report, released on Thursday.

CPI eased to 1.8 percent in July, the lowest reading over the past 30 months, in the wake of the government's price control measures. However,food prices, which account for one third of China's CPI calculation, are likely to rebound over the next few months as the weather's turning cold will affect vegetable harvests.

Meanwhile, the UBS forecast that the Producer Price Index, the inflation gauge at the wholesale level, will have fallen 3.2 percent, larger than a decrease of 2.9 percent in July and in sharp contrast with the 7.3 percent increase in the same period last year.

The decrease is likely to echo the lackluster performance of China's corporate earnings in the first half of 2012, when they were dampened by overcapacity, rising costs and shrinking demand.

Affected by sagging demand from the European Union and United States, exports are likely to have expanded by a mere 2.5 percent in August, the UBS added. Though that's higher than the figure of 1.0 percent in July, it represents a substantive decline from the 24.4-percent growth in the same period last year.

We are likely to see a jump in fixed-asset investment of 20.4 percent, the same rate with that of July but 4.6 percentage points lower than the same period last year.

Given the government's firm stance on property market regulation, the report said the outlook for the industry will remain uncertain, with more controls are still on the cards in the second half.

The UBS expects China's economy will recover slowly in the second half, as entrepreneurs' confidence will not build if the government holds its silence about strong policy support.

But the bank maintains that the government's growth target of 7.5 percent this year is achievable despite the slowing recovery.