China’s economy grew 9.9% year-on-year in the first three quarters of this year, compared to 10.4% achieved in the first half of 2008, showing the impact of the current global financial turmoil on the world’s fastest growing economy.

For the third quarter, gross domestic product (GDP) growth rate slowed to 9%, which was the lowest in five years, announced the China National Bureau of Statistics. China’s GDP grew by 10.6% and 10.1% in the first and second quarters of this year respectively.

The total GDP for the January-September period included 2.18 trillion yuan generated by the primary sector, up 4.5%, 10.11 trillion yuan by the secondary sector (including manufacturing and construction), up 10.5% and the tertiary sector (mainly services) was up 10.3%, contributing 7.87 trillion yuan.

The good news is that China’s inflation has been easing gradually from June’s 7.1%, 6.3% in July, and 4.9% in August and close to a 12-year-high of 8.7% in February. In September, the Consumer Price Index rose 4.6% against the corresponding period last year.

The global economic slowdown is taking its toll on China’s exports, one of the three major drivers of the Chinese economy along with investment and consumption. In the first three quarters, exports grew 22.3%, down 4.8% points from the same period last year.

Chinese exporters are facing a difficult situation as they grapple with a combination of rising production costs, appreciation of the yuan and slackening demand amidst the global slowdown.

Fixed assets investment totaled 11.6246 trillion yuan ($1.66 trillion) in the first three quarters of 2008, up 27% over the same period last year, according to the bureau.

China’s retail sales, another important economic indicator, increased by 22% year-on-year in the first three quarters and climbed 23.2% in September alone. Analysts say China would have to further stimulate domestic consumption in order to push the economy forward amid an export slump.

The combination of an economic slowdown and easing inflation may give rise to louder calls for loosening the monetary policy and adopting a more proactive fiscal policy. Analysts expect more monetary easing, building on two cuts in interest rates and banks’ required reserves since mid-September.