(Bloomberg) — China cut the amount of cash banks must keep in reserve at the central bank in an effort to support lending and strengthen the economy’s recovery from pandemic restrictions and a property market slump.
The People’s Bank of China reduced the reserve requirement ratio for almost all banks by 0.25 percentage points, effective from March 27, it said in a statement on Friday. The PBOC last cut the RRR in December, by the same magnitude.
Economists said the cut was aimed at ensuring liquidity in the banking system to sustain the rapid pace of lending seen in January and February.
China’s consumer spending and investment rebounded in the first two months of the year after pandemic restrictions were dropped in December, according to recent official data. But the recovery remains uncertain, with unemployment still elevated, property investment continuing to contract and falling exports dragging on industrial output.
Read More: China Reports Economy Rebound But Warns of Risks to Recovery
“It seems that the central bank is not going to slow the pace of credit growth as people feared,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd.
The timing of the cut could be due to concerns that credit growth could slump in April, following the completion of financing for a number of government-led investment projects early this year, Xing added.
The yuan pared an advance of as much as 0.6%, trading 0.1% stronger at 6.89 in the onshore market after the PBOC’s move.
What Bloomberg Economics Says…
The PBOC’s move “highlights an easing bias — we expect an interest-rate cut to follow and see the PBOC trimming the required reserve ratio further this year.”
It’s estimated the RRR cut “will release 500 billion yuan in long-term cash to the banking sector.”
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David Qu, China economist
The PBOC said the cut in the reserve ratio was aimed at maintaining “reasonable and sufficient liquidity” and ensuring that money supply increases in line with nominal economic growth. The central bank added it won’t engage in “flood irrigation,” a term it uses to refer to large stimulus.
The average reserve rate of financial institutions will be 7.6% following the cut, the PBOC said. The cut will not apply to banks whose reserve rate is 5%, it added.
The cut “is about topping up the lending capacity of banks, after strong long-term corporate loans and local government bond issuance to fund infrastructure and manufacturing investment in January-February,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
Beijing has set a moderate gross domestic product growth target of around 5% for this year, and signaled it will rely on a recovery in consumer spending to reach that goal while avoiding large-scale monetary and fiscal stimulus.
Huang Yuhang, a fund manager at Lanqern Capital Management Co., said the PBOC’s move was likely less to do with fears about banking stress, “but rather the recovery seems to need a bit of help, judging by the economic figures this week.” Huang added that “the key impediment to the recovery is demand still being weak, as confidence for incomes is still fragile.”
PBOC Governor Yi Gang, who was recently reappointed to his post, said at a press conference this month that current interest rates were appropriate. He added that cuts to the reserve ratio could be an “effective tool” to support the real economy.
While the current economic recovery means that there is less need for an interest rate cut, the PBOC could cut the RRR by a further 0.25-0.75 percentage points this year, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc.
“The probability of a further cut is relatively high in the middle of the year when liquidity tends to tighten” and in the fourth quarter, he said.
–With assistance from Yujing Liu, Chester Yung and April Ma.
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.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
