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By the numbers: Economic effects of China coronavirus – Aljazeera.com

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Suspended flights, cancelled tours, temporary restaurant closures, and millions of people in lockdown amid an extended nationwide holiday are just some of the results of a contagious new coronavirus that has caused more than 80 deaths in China.

At the epicentre of the outbreak is Wuhan, a Chinese city of more than 11 million people, where the disease was first recorded and is now home to the highest number of cases.

Touted as China’s Chicago, fast-growing Wuhan was expected to record a regional economic growth rate of up to 7.8 percent in 2020, according to local government estimates. This would make it a key pillar of growth in China’s sluggish economy, which is expected to grow by just 6 percent, according to central government figures.

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However, as shutters roll down in shops and public transportation comes to a standstill as the coronavirus spreads, one of China’s brightest economic spots could end up dimming the prospects of a country already struggling with its weakest economic growth in 29 years.

China said on Monday that its finance ministry and National Health Commission have extended 60.33 billion yuan ($8.74bn) to help contain the virus.

International airlines ranging from Taiwan’s China Airlines to Singapore’s Scoot have cancelled flights to and from Wuhan. According to data from aviation data analytics firm Cirium, Wuhan receives 55 international flights each week from more than 20 countries.

In response to questions from Al Jazeera, AirAsia and Cathay Pacific referred to official statements regarding the suspensions of flights from Wuhan.

As of Sunday, Cathay Pacific extended the suspension of its flights to and from Wuhan until the end of March and allowed crew members and front-line airport employees to wear face surgical masks.

Meanwhile, AirAsia has temporarily cancelled all flights from Kota Kinabalu in Malaysia, Bangkok and Phuket to Wuhan until January 28, resulting in some three flights suspended daily, based on their weekly frequency schedule.

Passengers have been offered full refunds, and the opportunity to book a new travel date within 30 days, or credit an AirAsia account to be used within 90 days, the airline said.

Neither airline responded directly to questions about the costs they might incur from the suspensions of their daily flights to Wuhan.

As consumption spending has become the most important growth driver for the Chinese economy in recent years, a key near-term risk is a negative effect the virus has on Chinese consumer sentiment, according to Rajiv Biswas, chief economist for Asia Pacific at IHS Markit.

“With many entertainment venues in China, including an estimated 11,000 cinema theatres as well as major resorts such as the Disneyland park in Shanghai having temporarily closed due to the Wuhan virus outbreak, the immediate negative impact on China’s entertainment industry is already significant,” he said in a note shared with Al Jazeera.

Other Asia-Pacific countries are also vulnerable to a further economic slowdown in China, as well as a decline in Chinese tourism as the country imposes travel bans on outgoing group tours, Biswas said.

“The rapid rise in household incomes in China has triggered a boom in Chinese tourism visits abroad, which have risen from 20 million in 2003 to 150 million in 2018. Consequently, the vulnerability of many Asia-Pacific economies to a slowdown in Chinese tourism visits has increased significantly over the past two decades,” he said.

How bad can it get?

On Monday, shares of tour operators fell in Thailand and Japan as China banned outbound group tours to contain the spread of the virus.

Singapore is also bracing for economic fallout from the virus.

“We certainly expect there to be an impact on our economy, business and consumer confidence this year, especially as the situation is expected to persist for some time,” Singapore’s Trade Minister Chan Chun Sing said on Monday.

At a news conference, Chan said Singapore’s government is considering support measures for hard-hit sectors such as tourism.

Chinese nationals make up the largest share of visitors to Singapore, one of the worst-hit countries outside of China in the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS), another strain of the coronavirus which killed 800 people globally.

A 2018 study estimated that another global influenza pandemic could kill 720,000 people and cost $500bn, or 0.6 percent of global income per year.

That is within the range of estimated global losses from global warming (between 0.2 percent and 2 percent of global income).

Lower and middle-income countries would suffer the most, with an estimated 1.6 percent of annual income lost if an influenza pandemic occurred.

High-income countries are expected to lose about 0.3 percent of the annual income.

China-wide, if spending on things including discretionary transport and entertainment dropped by 10 percent, overall gross domestic product (GDP) growth would fall by about 1.2 percentage points, according to “back of the envelope” estimates from Shaun Roache, chief economist for the Asia Pacific region at global ratings agency Standard & Poor’s.

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French Economy Clings On to Growth as Energy Concerns Mount – BNN Bloomberg

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(Bloomberg) — The French economy looks set to make it through the end of the year without a decline in output, even as business leaders are concerned about the increasing impact of surging energy prices on their activity.

A monthly survey of 8,500 companies by the Bank of France published on Thursday indicated a 0.1% expansion in the fourth quarter after activity improved more than anticipated in all sectors in November. Services are expected to grow again this month, while industry stabilizes and construction declines.

“Despite a very uncertain environment marked by a convergence of large-scale external shocks, activity is still resisting overall,” the central bank said. Its longer-term projections published in September assumed no growth in the final three months of 2022.

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Read more: Bank of France’s Gloomy Outlook Casts Doubt on Macron’s Plans

The assessment is relatively upbeat compared with an average forecast from analysts for France to finish the year with a 0.2% quarterly contraction. S&P Global’s purchasing managers’ index for November indicates a recession is already underway in the 19-nation euro area.

The Bank of France’s survey also showed supply difficulties eased last month, reaching the lowest level in industry and construction since it started gauging frictions in May 2021.

Still, the central bank’s measure of the impact of surging energy prices points to greater headwinds early next year. Of the business leaders surveyed, 24% said the energy crisis is already having a significant impact on activity, while 35% see a hit in the next three months.

©2022 Bloomberg L.P.

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China’s Economy Is In for a Bumpy Ride as Covid Zero Comes to an End

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(Bloomberg) — Three years after the first case of Covid-19 was reported in Wuhan, Chinese policymakers must now grapple with how to live with the virus while keeping the economy growing fast enough to stave off public anger.

With the Covid Zero policy being rapidly dismantled, the threat of economic disruption remains high. Infections are likely to surge, forcing workers to stay home, businesses may run out of supplies, restaurants could be emptied of customers and hospitals will fill up. Even though there’s optimism the economy will recover as China opens up to the rest of the world, the next six months could be particularly volatile.

Goldman Sachs Group Inc. expects below-consensus economic growth in the first half of next year, saying the initial stages of reopening will be negative for the economy, as was the experience in other East Asian economies. Morgan Stanley predicts China’s economy to remain “subpar” through the first half of next year. Standard Chartered Plc said growth in urban consumer spending will still lag pre-pandemic rates next year given the hit to household incomes during the pandemic.

The economy was already in bad shape this year because of the Covid outbreaks and a property market crisis. While China’s zero tolerance approach to combating infections has kept infections and deaths relatively low for most of the pandemic, the rapid spread of the highly infectious omicron variant exposed the challenges of maintaining strict controls. From snap city-wide lockdowns to almost-daily Covid tests, the restrictions have taken a heavy toll on people’s lives and the economy.

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That discontent manifested in mass unrest at the end of last month. People in Beijing, Shanghai and elsewhere started to reject demands for quarantines or lockdowns of their housing estates, and between Nov. 25 and Dec. 5, at least 70 mass protests occurred across 30 cities, according to data compiled by think-tank Australian Strategic Policy Institute.

Authorities have moved to quell public anger by relaxing some Covid requirements around testing and quarantine — although the sudden and confusing changes to the rules over the past few weeks have injected more uncertainty about the economy’s outlook.

Here’s a deeper look at the economy’s downturn and the challenges it faces as China exits Covid Zero.

People have been cooped up in their homesChina’s cities have been hit hard by Covid restrictions, with mobility across the country’s 15 largest cities plummeting in recent months, according to congestion data released by Baidu Inc.

Major hubs are showing strain, including the capital Beijing, as well as Chongqing and Guangzhou. Trips there have plunged in recent months below levels in previous years, according to subway data compiled by Bloomberg.

Few have borne the brunt of China’s Covid Zero policy more than the financial hub of Shanghai, a major epicenter for recent protests. After a two-month lockdown this year to tackle a major outbreak, China’s richest city is still struggling to get back up off its knees.

Malls have seen a surge in vacancies, consumer spending has plunged, and spending in areas like food and beverages has been depressed, mirroring the national trend.

Lack of spending has hit the economy hardCovid restrictions have battered the economy, with consumers pulling back on spending and business output plunging. Retail sales unexpectedly contracted 0.5% in October from a year earlier, with economists surveyed by Bloomberg predicting an even worse outcome of a decline of 3.9% in November.

The government is expected to miss its economic growth target of around 5.5% by a significant margin this year. The consensus among economists is for growth of just 3.2%, which would be the weakest pace since the 1970s barring the pandemic slump in 2020.

With onerous testing rules, flare ups in holiday spots, and official advice discouraging travel, holidaymakers have stayed home, adding a further drag on retail spending. Tourism revenue declined 26% to 287 billion yuan ($40.3 billion) over the week-long National Day holiday in October compared to the same period last year. Flight travel also dropped to its lowest levels since at least 2018.

Youth unemployment is near a record high

That’s all combined to drive growing economic malaise among the country’s youth, with the unemployment rate among 16-24 year-olds soaring to a record high of about 20% earlier this year. Joblessness among young people is more than triple the national rate, with many graduates struggling to find work in the downturn, especially in the technology and property-related industries.

Unemployment will likely get worse next year, when a new crop of 11.6 million university and college students are expected to graduate, adding to pressure in the labor market. Factories are still struggling to cope with Covid outbreaks

So far during the pandemic, the industrial sector has held up better than consumer spending since factories were protected from Covid outbreaks and global demand for Chinese-made goods was strong. That’s changing now.

Export demand is plummeting as consumers around the world grapple with soaring inflation and rising interest rates.

The disruption at a major assembly plant in Zhengzhou for Apple Inc.’s iPhones and violent protests there last month also show the damage that outbreaks can have on production.

The housing market crisis continues to simmer

China’s ongoing real estate slump has also been a source of unhappiness for homebuyers.  The property market, which has long been a major driver of the country’s economy, is in its worst downturn in modern history, with sales and prices plummeting. Cash-strapped property developers struggled to finish building homes, prompting mortgage boycotts by thousands of buyers in the summer.

Despite authorities introducing a spate of measures recently to help make borrowing easier and ease tight cash flows for developers, the economy’s downturn and lack of confidence mean the housing market continues to be depressed. The slump is not expected to end soon, with Bloomberg Economics expecting a 25% drop in property investment in the coming decade.Local governments are struggling to fund their spending

Government finances have come under severe pressure as the economy slumped. Land revenues have plummeted and local governments have had to boost spending on Covid control measures. The broad measure of the fiscal deficit in the first 10 months of the year is nearly triple the amount it was in the same period last year.

Relaxing testing and quarantine rules will help ease pressure on local government finances. However, it remains to be seen how far and fast authorities will go in dismantling Covid Zero if a surge in Covid cases puts strain on the healthcare system, a likely outcome given that a significant portion of the country’s elderly and vulnerable population are still unvaccinated or lacking booster shots.

–With assistance from Kevin Varley, Jin Wu, Danny Lee and Fran Wang.

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The US Fed’s Balance Sheet Shows What’s Happening To The Economy

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The mother of all charts is below. This is the Federal Reserve balance sheet history straight from their website:

This is where the world’s inflation comes from. Not all, of course, because central banks around the world have done the same. In goes new money and up goes the price of stuff. Now if there is less stuff, then up goes the price even more. However, without new money prices cannot rise across the board, inflation is always about money supply.

This is why the Fed is reining it in. Down goes money supply, down goes asset prices.

Now there is one modifying factor. If you pump new money into an economy and that money goes to drive up the prices of illiquid assets, then the inflationary impact will be in those illiquid assets and the new money will be locked up there and will only dribble into the “real economy.” Let’s say you pump in money and make it easy to be grabbed by people buying houses or stocks but make it hard to be grabbed by people buying groceries, well then up will go the price of houses and stocks but groceries will not be that much affected. The lucky (rich) folk with the stocks and house will get much richer and the people who need to buy groceries will get left behind somewhat but at least there won’t be runaway inflation outside of stocks and houses. Woe betide an economy that hands out money to people to buy groceries because boy is everyone in for a bout of inflation then.

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Ring any bells?

So to get prices under control you have to drain money from the system because when there is too much in the wrong places it starts rushing around bidding up the price of everything.

There is too much money in the system and that money is parked and it’s parked at the Federal Reserve where banks who can’t use a big chunk of this new money have kind of handed it back to the Federal Reserve to look after. That is the reverse repo which has gone out of whack with all the new money magicked up to bridge the pandemic.

Here is a chart of it:

Note how it matches the Fed balance sheet in character. This money is a bulwark for the banks if things get tricky as they can pull this cash out and back into play in the real economy, but in normality it would be down at 2014-2018 levels if there was just about the right level of money in the system. The Fed will feel there is plenty of room to tighten while these balances are high because if banks need liquidity, there it is.

This is where the big call lies. If banks were to say to the Fed, nope we aren’t going to lend to anyone but you and turn the real economy into a credit desert while damming up the cash with the Federal Reserve then there is no hope of a “soft landing.” If the money stays in the system as is then inflation should run its course and the new money supply would match new price levels, which wouldn’t be so bad, but the trouble is government fiscal deficits would then necessitate further money supply increases creating further inflation which could only be combatted with more interest rate rises, causing a vicious circle of high inflation and stagnation. That is what happen in the 1970s…

But that is all “what if.”

The real map is the progress of these two charts. If these balances fall without much drama then all is working out well, but if tightening starts to badly disrupt the economy without these levels falling materially then it will be a signal to take cover.

The institutions think inflation is about to fall sharply and that then new QE will restart. I say ‘good luck with that.’ However, these charts will provide the guidance necessary to judge the likely outcome ahead.

For me there needs to be a capitulation to define the new beginning we are entering and that hasn’t happened yet.

Once again these charts will give a solid indication of what’s up next.

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