Here's why dark skies are ahead for China

Slowing industrial production and PMI point to a weaker GDP growth forecast.

According to BBVA Research, growth momentum has continued to slow, as seen in recent monthly activity indicators including industrial production and PMI.

Here's more from BBVA Research:

As a result, expectations of Q3 GDP growth have weakened, and we expect a further moderation from Q2, driven by weak external demand and softening domestic consumption.

While the authorities have stepped up policy support through increased spending on infrastructure and social housing, the scale so far has been less than expected, possibly due to caution ahead of the forthcoming leadership transition scheduled in November.

We expect policies to turn even more growth supportive in the months ahead — including further cuts in the RRR and interest rates — which should lead to a pickup in growth in Q4 and 2013.

In addition to GDP, a number of important monthly indicators will also be released next week, including industrial production, investment, retail sales, and credit aggregates. We expect these indicators to remain broadly stable from the August levels.

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