BEIJING —
China suffered its worst economic contraction since since at least the 1970s in the first quarter as it fought the coronavirus, and weak consumer spending and factory activity suggest it faces a longer, harder recovery than initially expected.
The world’s second-largest economy shrank 6.8% from a year ago in the three months ending in March after factories, shops and travel were closed to contain the infection, official data showed Friday.
That was stronger than some forecasts that called for a contraction of up to 16% but China’s worst performance since before market-style economic reforms started in 1979.
Some forecasters earlier said China, which led the way into a global shutdown to fight the virus, might rebound as early as this month. But they have been cutting growth forecasts and pushing back recovery timelines as negative trade, retail sales and other data pile up.
“I don’t think we will see a real recovery until the fourth quarter or the end of the year,” said economist Zhu Zhenxin at the Rushi Finance Institute in Beijing.
Retail spending, which supplied 80% of China’s economic growth last year, plunged 19% in the first quarter from a year earlier, below most forecasts. Investment in factories and other fixed assets, the other major growth driver, sank 16.1%.
The ruling Communist Party declared victory over the virus in early March and started reopening factories and offices even as the United States and Europe tightened controls. But cinemas, hair salons and other businesses that are deemed nonessential but employ millions of people are still closed. Tourism is struggling to recover.
Controls on Beijing, the capital, and some other cities have been tightened to prevent a resurgence of the disease. Most foreigners are barred from entering the country.
Consumer spending is slow to recover despite government moves to encourage spending by giving out shopping vouchers in some cities and launching a media campaign showing officials eating in restaurants.
Many would-be shoppers are holding onto their money out of fear about possible job losses. Others are reluctant to venture into supermarkets or even leave their homes.
That is a blow to automakers and other companies that hope China will power the world economy out of its most painful slump since the 1930s.
“I will definitely be more thrifty,” said Zhang Lizhou, a 26-year-old marketing manager in Beijing.
Zhang said his company, which has yet to reopen, is paying him 1,500 yuan ($215) per month but his finances are strained paying a mortgage. His girlfriend lost her job when her employer failed due to the epidemic.
“I will save money to get through possible difficulties,” Zhang said. “If I had done that, I wouldn’t be like what I am now — anxious but unable to do anything.”
The ruling party appealed to companies to keep paying employees and avoid layoffs. It is promising tax breaks and loans to help entrepreneurs get back on their feet. Still, a wave of bankruptcies has flooded the job market, adding to economic anxiety.
Auto sales sank 48.4% from a year earlier in March. That was better than February’s record 81.7% plunge but is on top of a 2-year-old decline that already was squeezing global and Chinese automakers in the industry’s biggest global market.
Exports declined 6.6% in March from a year ago. That was an improvement over the double-digit plunge in January and February, but forecasters warn exporters likely face another downturn as the fight against the virus depresses U.S. and European consumer demand.
Forecasters including Oxford Economics, UBS and Nomura say China will have little to no economic growth this year.
The operator of a still-shuttered fitness centre in the western city of Xi’an said he doesn’t know whether the business will survive.
“The business may go bankrupt, and I would have to find something else to do,” said the owner, who would give only his surname, Liu.
Beijing is trying to prop up activity by spending more on building next-generation telecoms networks and other projects. But the ruling party doesn’t want to pump too much money into the economy for fear adding to debt or pushing up inflation that is near a seven-year high.
Chinese leaders probably will adopt stimulus measures at least as big as their response to the 2008 crisis but will emphasize “quality instead of quantity,” said Zhu at the Rushi Finance Institute.
He said money was likely to go to technology development and social welfare instead of construction, as it did in 2008.
Last year’s economic growth sank to a multi-decade low of 6.1% under pressure from weak consumer demand and a tariff war with President Donald Trump that depressed exports.
“The epidemic has amplified the problems, so the pace of recovery will be much slower,” said Zhu.
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AP video producer Wayne Zhang and researcher Yu Bing contributed.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
