Shanghai’s sweeping, two-phase lockdown will likely deal a heavy blow to businesses reliant on consumer spending, though economists say the city’s industrial sector can largely withstand the disruption, mitigating threats to the global supply chain.
The staggered eight-day lockdown in Shanghai — a city of 25 million people — and lingering effects from the measure may shave up to 0.4 percentage point from China’s economic growth in the first and second quarter, compared to a year ago, according to estimates by Liu Peiqian, China economist at NatWest Group Plc.
The restrictions targeting half of the city at a time will bar the city’s residents from leaving home, an attempt to curb China’s worst COVID outbreak since Wuhan in early 2020. That will likely hurt employment in the services industry and weigh on small businesses the most.
“COVID suppresses people’s confidence and expectations for spending,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. He also pointed to impacts on industries that rely on in-person and social gatherings, especially catering.
Liu, whose forecast for gross domestic product growth in the first quarter is 4.7 per cent, said the “gradual recovery” of the services and consumption sectors could take eight weeks.
As a major financial and trade hub, Shanghai contributes 3.8 per cent to the country’s GDP. It’s also the second-richest city, trailing only Beijing, according to the latest available figures from the National Bureau of Statistics.
Economists have been downgrading China’s growth forecasts for the year as outbreaks linked to the highly infectious omicron variant continue to spread. High frequency indicators and company statements released so far suggest a likely temporary hit to factory production as the government tries to minimize the fallout. The damage to consumer sentiment may be more lasting though, putting the government’s full-year growth target of about 5.5 per cent under threat.
Even before the Shanghai lockdown was announced, Nomura Holdings Inc. warned China’s economy faces its worst downward pressure since the pandemic began. The bank’s economists, led by Lu Ting, wrote in a note that markets should be concerned about a slide in growth in the second quarter as they downgraded quarterly forecasts for the rest of the year.
Factory activity likely took a knock in March, with the official manufacturing Purchasing Manager’s Index, which is scheduled for release on Thursday, probably slipping into contraction after the Shenzhen lockdown, according to Bloomberg Economics.
What Bloomberg Economics Says…
The lockdown in Shanghai — China’s international financial center and biggest city economically — and the measures leading up to it will have a direct impact on the Chinese economy that is comparable to the Shenzhen episode. But the negative hit to sentiment could be greater. So far the lockdown allows for continued operations at financial institutions and ports. Anything beyond the current plan risks disruptions to financial flows and international trade.
Chang Shu and David Qu
On supply chains, China can likely limit the damage as long as the lockdown doesn’t last longer than three weeks, according to Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.
He said a so-called closed loop system tested in Shenzhen — where factory workers are living in dorms, working in a bubble separate from the general public — has lessened the impact on the economy. The southern technology hub of Shenzhen resumed normal operations Sunday, about two weeks after the government placed its 17.5 million residents under lockdown.
“Similar to Shenzhen, Shanghai is the economic powerhouse of the country,” Yeung said. “The scale is obviously larger but the action is swift, hoping to minimize the economic impact as soon as possible.”
The Shanghai port, the world’s largest, is still operating around the clock, according to local media reports. Chinese chipmaker Semiconductor Manufacturing International Corp is maintaining normal production at its facility in the city, and is complying with COVID prevention measures.
Tesla Inc., meanwhile, suspended production Monday, with operations to be halted for four days.
COVID ZERO
China is the last holdout in pursuing COVID Zero, a strategy that prioritizes control and elimination of the virus through stringent restrictions like lockdowns and mass testing. Many experts still think Beijing won’t ease curbs and open up this year, though some have said the country’s virus strategy could continue to be tweaked, allowing for some flexibility.
The government could boost confidence should it detail a road map for eventually reopening to the rest of the world, according to Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.
“The main uncertainty facing China’s COVID fight is that the exit strategy is not clear going forward,” he said. “The zero tolerance policy is likely to be unsustainable in long term in terms of economic costs and the burden on normal people’s daily lives.”
Larry Hu, an economist at Macquarie Capital Ltd., said policy makers will have “no choice but to step up stimulus in the coming months” in order to meet the GDP growth target this year.
“We maintain our annual GDP forecast of 5 per cent, as more policy easing would come through,” he said, predicting a benchmark interest rate cut in April, as well as more support for infrastructure and property sectors.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
