Live Markets-Could China be about to turn on the stimulus taps?

With China's economy losing momentum, economists and analysts believe policymakers could be poised to step up support.

Economic growth slowed to a 3-1/2 year low in the second quarter and July's data from earlier this week painted a gloomy start to the third quarter.

Factory output grew 4.5% from a year earlier in July, compared with 5.3% in June, while retail sales grew 0.6%, slowing from a 1% rise in the prior month.

"Economic growth will probably not improve organically in the coming months, meaning there is an increasing probability that policymakers will act more forcefully to shore up growth later in the year," said economists at Gavekal Dragonomics, led by Wei He.

Citigroup believes that incremental support, if not major stimulus, could already be underway, although they do not expect a loan prime rate cut from the People's Bank of China this month.

A Reuters poll of economists also expects China to keep its benchmark lending rates steady for a 15th consecutive month, despite the recent weakness in the economy.

Gavekal's Wei He believes there is an increasing risk that policymakers in China could fall behind the curve, as growth could slow further.

"That means they might feel compelled to take stronger action to boost growth around September or October," said Wei He.

Though even then, Wei He believes China will first look to accelerate fiscal deficit spending and the rollout of previously announced "new policy financing tools" before they turn to any muscular, new stimulus measures.