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Companies warn of an economic crisis as China battles coronavirus – The Economist

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5 years ago

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RARELY HAVE plans in China fallen apart so swiftly and so publicly. On January 12th the leaders of Hubei declared that the province’s GDP would grow by 7.5% this year. They made no mention of a new virus fast spreading through its towns and cities. But less than two weeks later it could not be ignored. They placed the province under quarantine, hemming in over 50m people and rendering this year’s flashy growth target almost certainly unreachable.

The lurch from confidence to anxiety has echoed throughout China. In the months before the coronavirus outbreak, the stockmarket had rallied and businesses had been upbeat, not least because China and America had struck a trade deal. But optimism has crumbled as officials have begun to fight the epidemic.

The Chinese stockmarket has fallen by 10% since January 20th. Factories and offices were supposed to reopen in recent days after the new-year holiday. Most provinces have ordered them to stay shut until at least February 10th. Farmers have warned that their chickens might starve because roadblocks have snarled their feed supplies. Few people dare venture out, hitting restaurants and hotels especially hard. In an interview that attracted much attention before being censored, the founder of Xibei, a restaurant chain, said that if the lockdown persisted for a few months, vast numbers could lose their jobs. “Wouldn’t that be an economic crisis?” he asked.

Analysts have rushed to lower their economic forecasts. The consensus had been that GDP would expand about by 6% year-on-year in the first quarter. Now several expect a 4% pace, the slowest since China began publishing quarterly figures in 1992.

Usually, the further into the future you peer, the greater the uncertainty. But as past epidemics have shown, China’s officials can be fairly confident that growth will rebound to its pre-virus trajectory next year. It is the next couple of months that are the black hole. Three unknowns cloud the outlook: how long it takes to contain the virus; when the government relaxes its heavy-handed restrictions on daily life; and how long after that people resume the whirl of activity that normally makes the Chinese economy so vibrant.

This near-term uncertainty presents a challenge for economic policy. Even if growth plummets, a big stimulus package might be dangerous medicine. Given the lag in spending, the boost from projects announced today could kick in just as the economy gathers steam of its own, leading to overheating. Instead, measures to help people and firms through the rough patch are more sensible. These can be pared back when the recovery eventually arrives. Getting them right, though, is not easy.

Officials are combining temporary cash support with market interventions and forbearance. On February 3rd the central bank injected 1.2trn yuan ($172bn) into the financial system by purchasing treasury bonds from banks that promise to buy them back within 14 days. Banks will probably suffer from rising loan defaults in the coming weeks; this gives them more cash to work with in the near term. The central bank can extend the support if needed.

Officials are also meddling in the stockmarket (or, as they would say, managing it). Regulators have told brokers to bar clients from short selling, so as to limit downward pressure, according to Reuters. State media have also played cheerleader, saying that big state-owned insurance companies were primed to scoop up undervalued stocks. Share prices still dropped by 8% on February 3rd. But that was largely a catch-up with the Hong Kong market, which had been open the previous week. Trading has since stabilised, suggesting that the tactics are working.

Finally, officials have been orchestrating forbearance on various fronts. Shanghai was due to raise companies’ social-security contributions on April 1st. That has been delayed by three months, saving firms an estimated 10bn yuan. In Beijing officials have encouraged landlords to cut their commercial tenants’ rents, in exchange for subsidies. And regulators have called on banks nationwide to roll over loans to companies that would otherwise lack the cash buffers to survive.

Even as the death toll mounts, some officials are already thinking about the economic distortions that have arisen in the course of the battle against the epidemic. Hospitals face shortages of masks, gowns and gloves. At the government’s urging, producers have increased output. But as Liu Shangxi, an adviser to the finance ministry, has noted, they will suffer from severe overcapacity after the crisis passes. The government should thus be ready, he argues, to compensate them.

Such proposals are a far cry from the bold plans that Hubei’s leaders laid out only a few weeks ago. Yet the priority these days is not to gee up growth but to ensure that society remains stable as the quarantines drag on. China’s grim new reality is that everything, even economic policy, revolves around beating the virus. ■

This article appeared in the Finance and economics section of the print edition under the headline “Companies warn of an economic crisis as China battles coronavirus”

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Economy

Statistics Canada reports real GDP grew 0.2% in July

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September 27, 2024

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OTTAWA – Statistics Canada says real gross domestic product grew 0.2 per cent in July, following essentially no change in June, helped by strength in the retail trade sector.

The agency says the growth came as services-producing industries grew 0.2 per cent for the month.

The retail trade sector was the largest contributor to overall growth in July as it gained one per cent, helped by the motor vehicles and parts dealers subsector which gained 2.8 per cent.

The public sector aggregate, which includes the educational services, health care and social assistance, and public administration sectors, gained 0.3 per cent, while the finance and insurance sector rose 0.5 per cent.

Meanwhile, goods-producing industries gained 0.1 per cent in July as the utilities sector rose 1.3 per cent and the manufacturing sector grew 0.3 per cent.

Statistics Canada’s early estimate for August suggests real GDP for the month was essentially unchanged, as increases in oil and gas extraction and the public sector were offset by decreases in manufacturing and transportation and warehousing.

This report by The Canadian Press was first published Sept. 27, 2024.

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S&P/TSX composite tops 24,000 points for first time, U.S. markets also rise Thursday

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13 hours ago

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September 26, 2024

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TORONTO – Canada’s main stock index closed above 24,000 for the first time Thursday as strength in base metals and other sectors outweighed losses in energy, while U.S. markets also rose and the S&P 500 notched another record as well.

“Another day, another record,” said Angelo Kourkafas, senior investment strategist at Edward Jones.

“The path of least resistance continues to be higher.”

The S&P/TSX composite index closed up 127.95 points at 24,033.83.

In New York, the Dow Jones industrial average was up 260.36 points at 42,175.11. The S&P 500 index was up 23.11 points at 5,745.37, while the Nasdaq composite was up 108.09 points at 18,190.29.

Markets continue to be optimistic about an economic soft landing, said Kourkafas, after the U.S. Federal Reserve last week announced an outsized cut to its key interest rate following months of speculation about when it would start easing policy.

Economic data Thursday added to the story that the U.S. economy remains resilient despite higher rates, said Kourkafas.

The U.S. economy grew at a three-per-cent annual rate in the second quarter, one report said, picking up from the first quarter of the year. Another report showed fewer U.S. workers applied for unemployment benefits last week.

The data shows “the economy remains on strong footing while the Fed is pivoting now in a decisive way towards an easier policy,” said Kourkafas.

The Fed’s decisive move gave investors more reason to believe that a soft landing is still the “base case scenario,” he said, “and likely reduces the downside risks for a recession by having the Fed moving too late or falling behind the curve.”

North of the border, the TSX usually gets a boost from Wall St. strength, said Kourkafas, but on Thursday the index also reflected some optimism of its own as the Bank of Canada has already cut rates three times to address weakening in the economy.

“The Bank of Canada likely now will be emboldened by the Fed,” he said.

“They didn’t want to move too far ahead of the Fed, and now that the Fed moved in a bigger-than-expected way, that provides more room for the Bank of Canada to cut as aggressively as needed to support the economy, given that inflation is within the target range.”

The TSX has also been benefiting from strength in materials after China’s central bank announced several measures meant to support the company’s economy, said Kourkafas.

However, energy stocks dragged on the Canadian index as oil prices fell Thursday following a report that Saudi Arabia was preparing to abandon its unofficial US$100-per-barrel price target for crude as it prepares to increase its output.

The Canadian dollar traded for 74.22 cents US compared with 74.28 cents US on Wednesday.

The November crude oil contract was down US$2.02 at US$67.67 per barrel and the November natural gas contract was down seven cents at US$2.75 per mmBTU.

The December gold contract was up US$10.20 at US$2,694.90 an ounce and the December copper contract was up 15 cents at US$4.64 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 26, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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S&P/TSX composite up more than 100 points, U.S. stocks also higher

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1 day ago

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September 26, 2024

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in the base metal sector, while U.S. stock markets were also higher.

The S&P/TSX composite index was 143.00 points at 24,048.88.

In New York, the Dow Jones industrial average was up 174.22 points at 42,088.97. The S&P 500 index was up 10.23 points at 5,732.49, while the Nasdaq composite was up 30.02 points at 18,112.23.

The Canadian dollar traded for 74.23 cents US compared with 74.28 cents US on Wednesday.

The November crude oil contract was down US$1.68 at US$68.01 per barrel and the November natural gas contract was down six cents at US$2.75 per mmBTU.

The December gold contract was up US$4.40 at US$2,689.10 an ounce and the December copper contract was up 13 cents at US$4.62 a pound.

This report by The Canadian Press was first published Sept. 26, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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