People walk in a shopping mall in Beijing, on June 15.WANG ZHAO/AFP/Getty Images
China’s economy stumbled in May with industrial output and retail sales growth missing forecasts, adding to expectations that Beijing will need to do more to shore up a shaky post-pandemic recovery.
The economic rebound seen earlier this year has lost momentum in the second quarter, prompting China’s central bank to cut some key interest rates this week for the first time in nearly a year, with expectations of more to come.
“The post-Covid recovery appears to have run its course, an economic double dip is nearly confirmed, and we now see significant downside risks to our below-consensus GDP growth forecasts of 5.5 per cent and 4.2 per cent for 2023 and 2024, respectively,” analysts at Nomura said in a research note after the latest disappointing data.
Industrial output grew 3.5 per cent in May from a year earlier, the National Bureau of Statistics (NBS) said on Thursday, slowing from the 5.6 per cent expansion in April and slightly below a 3.6 per cent increase expected by analysts in a Reuters poll, as manufacturers struggle with weak demand at home and abroad.
Retail sales – a key gauge of consumer confidence – rose 12.7 per cent, missing forecasts of 13.6 per cent growth and slowing from April’s 18.4 per cent.
“All the data points so far sent consistent signals that the economic momentum is weakening,” said Zhiwei Zhang, president of Pinpoint Asset Management.
Data ranging from factory surveys and trade to loan growth and home sales have shown signs of weakness in the world’s second-biggest economy. Crude steel output extended both year-on-year and month-on-month falls in May while daily coal output fell from April too, NBS figures showed.
The soft run of data has defied analysts’ expectations for a sharper pickup, given comparisons with last year’s very weak performance, when many cities were under strict COVID lockdowns.
The figures also reinforce the case for more stimulus as China faces deflationary risks, mounting local government debts, record youth unemployment and weakening global demand.
“Insufficient domestic demand and sluggish external demand could interrupt the momentum in the ongoing months, leaving China with a more gradual U-shape recovery trajectory on its month-on-month growth path,” said Bruce Pang, chief economist at Jones Lang LaSalle.
Introducing stimulus with large-scale policy easing would be the first step, Pang said. “But it could need two to three years to shore up a slowing economic recovery.”
Following the downbeat data, JP Morgan trimmed its forecast for China’s 2023 full-year gross domestic product (GDP) growth to 5.5 per cent from 5.9 per cent. The government has set a modest GDP growth target of around 5 per cent for this year, after badly missing the 2022 goal.
China’s central bank on Thursday cut the interest rate on its one-year medium-term lending facility, the first such easing in 10 months, paving the way for cuts in the benchmark loan prime rates (LPR) next week. The move was expected after it trimmed some short-term rates earlier in the week.
The yuan hit a fresh six-month low after the rate cut and China’s stock markets rose, with the benchmark CSI 300 gaining 1.6 per cent and Hong Kong’s Hang Seng Index climbing 2.2 per cent.
Markets are also betting on more stimulus, including measures targeting the floundering property sector, once a key driver of growth.
While policy-makers in Beijing have been cautious about deploying aggressive stimulus that could heighten capital flight risks, analysts say more easing will be needed.
The country’s biggest banks recently cut their deposit rates to ease pressure on profit margins and encourage savers to spend more.
Julian Evans-Pritchard, head of China at Capital Economics, said while the central bank’s easing won’t make much difference on its own, it reveals “growing concerns among officials about the health of China’s recovery.”
He added the second quarter is shaping up to be weaker than he had anticipated and further policy support is probably needed to prevent the economy from entering a renewed downturn.
NBS spokesperson Fu Linghui told a press briefing that second quarter growth was expected to pick up due to last year’s low base effect.
However, he warned the recovery faces challenges including “a complicated and grim international environment, sluggish global economic recovery” and well as “insufficient domestic demand.”
Yi Gang, PBOC governor, pledged last week that China will make counter-cyclical policy adjustments to shore up the economy.
Property investment in May fell at the fastest pace since at least 2001, down 21.5 per cent year-on-year, while new home price growth slowed.
The property sector, historically a major driver of China’s economic activity, is expected to grapple with “persistent weakness” for years, Goldman Sachs analysts said this week.
Private fixed-asset investment shrank 0.1 per cent in the first five months, a sharp contrast to the 8.4 per cent growth in investment by state entities, suggesting weak business confidence.
Labour market pains continued with youth unemployment jumping to a record 20.8 per cent. The nationwide survey-based jobless rate stayed at 5.2 per cent in May.
Strikes at Chinese factories have surged to a seven-year high and are expected to become more frequent as weak global demand forces exporters to cut workers’ pay and shut down plants, one rights group and economists said, further hurting consumer and business confidence.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
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