(Bloomberg) — China’s economic growth last quarter probably undershot Beijing’s annual target for 2023 as the property sector and subdued demand weighed on activity, a sign of the recovery’s fragility as the government reportedly mulls more stimulus.
Data due Wednesday will likely show gross domestic product expanded 4.5% in the July-to-September period from a year earlier — below the official full-year target of about 5%. GDP growth from the prior quarter likely picked up slightly. Authorities will also release data on industrial output, retail sales, investment and unemployment.
A growth rate slowing below the government’s annual goal may create a case for policymakers to step up support for the economy. While stimulus so far has appeared to have some impact — factory activity improved and a drop in exports moderated — consumer prices in September slowed to the brink of deflation and loan growth was weak.
Some economists have been raising their forecasts in recent weeks as they anticipate China just about hitting its growth target for 2023 — though it’s not a sure bet and any weakness in the data may suggest a need for President Xi Jinping’s government to do more to support the recovery.
Authorities are considering raising this year’s budget deficit by issuing more debt to spend on infrastructure, Bloomberg News reported last week, and are also mulling ways to shore up stock market confidence. Economists are expecting China to further cut interest rates and banks’ reserve requirement ratio this year.
“We believe it’s still too early to call the bottom,” said Nomura Holdings Inc. economists led by Lu Ting in a Tuesday note. “We expect a triple dip towards year-end or early 2024, and Beijing may have to step up its efforts to stabilize growth again at that time.”
If the third-quarter GDP data shows growth of 4.5%, Lu projects the final three months of the year would have to match that pace for Beijing to hit its target.
The National Bureau of Statistics is expected to release September and third-quarter economic data Wednesday at 10 a.m. local time. Here’s what to watch:
Industrial Production
Industrial output is projected to have increased 4.4% year-on-year in September, according to economists polled by Bloomberg. That’s a bit lower than August’s 4.5% pickup.
Even so, sequential growth has shown signs of improvement. Factory activity returned to expansion in September, according to an official survey, while a decline in exports narrowed further. High-frequency data also pointed to faster production of key construction materials, such as cement. Coal prices surged.
Power consumption in China jumped 9.9% last month from a year ago, the National Energy Administration said in a statement Monday, providing more evidence that economic activity has gained traction. However, the comparison base was relatively low, given that some southwestern provinces imposed power usage curbs amid a drought in September 2022.
Retail Sales
Retail sales probably continued to rebound. Economists predict sales growth accelerated to 4.9% in September from a year earlier, higher than August’s 4.6% gain.
Data reflecting consumer confidence and spending has been mixed in the past few weeks. Policies to boost car purchases seem to have worked somewhat, with passenger vehicle sales rising 5% last month from a year ago — the most since May.
Household spending on services including travel, hotels and catering were lifted over the Golden Week holiday period that started in late September, though those figures weren’t as strong as the government had hoped. Not all of that data will feature in this week’s figures, since most of the holiday occurred in October.
Consumer prices surprisingly stalled in September, underscoring challenges to the economy. UBS Group AG economists including Wang Tao, meanwhile, wrote last week that household views on existing and expected income growth suggested a “continued but halfway” recovery for those metrics. They cited an August UBS survey of 2,500 Chinese consumers.
Households in urban areas also accumulated more excess savings through the first half of the year in what the UBS economists called a “lingering headwind” for the consumption recovery.
Fixed-Asset Investment
Fixed-asset investment is projected to have risen 3.2% in the first nine months of the year from the same period in 2022. That would be flat with the growth rate from January through August.
Government-led spending on infrastructure increased after Beijing urged provinces to accelerate the issuance of special local bonds. Improving industrial profits and China’s push to make breakthroughs in advanced technology such as semiconductors amid curbs slapped by the US also bode well for manufacturing investment.
Property Woes
China’s debt-laden property sector remains the single biggest threat to the economy’s recovery. Developers are still reeling from a widening credit crisis, with Country Garden Holdings Co. becoming the latest major builder to signal a maiden default.
Economists expect real estate investment to have fallen 8.9% in the January-to-September period from a year ago, worsening from the pace recorded through the first eight months. That drop would suggest that measures policymakers have rolled out in recent weeks to help the sector — including reducing downpayment requirements and mortgage rates — have had limited impact.
“We continue to assume an ‘L-shaped’ recovery path for the property sector in coming years,” Goldman Sachs Group Inc. economists including Lisheng Wang wrote in a research note earlier this month. They cited “persistent weakness” and “record-high housing inventory” in lower tier cities, along with still-tight financing conditions for private developers.
The Goldman economists expect more easing to housing rules in the coming months, including a loosening of home purchasing curbs in more big cities, more public housing construction and additional financial support to ensure the delivery of pre-sold new homes.
Government Support
All eyes will be on whether the Chinese government adds more stimulus in the coming weeks to support the recovery.
The People’s Bank of China left the rate on its one-year policy loans unchanged on Monday, though it injected the most amount of cash through its medium-term lending facility since December 2020. The central bank last cut the interest rate on those loans in August, and freed up more long-term liquidity in September by lowering the amount of cash banks must hold in reserve.
What Bloomberg Economics Says …
“China’s recovery is starting to get some traction, supported by stronger public investment and monetary easing. This should be clear in September activity and third-quarter GDP data – beneath the headline readings. This would set the economy up for a better performance in the second half of the year, especially with additional stimulus in the works – putting the 5% growth target for 2023 within reach.”
— Chang Shu and David Qu, economists
Read the full report here.
“We still have ample room and policy reserve to deal with unexpected challenges and changes,” said Zou Lan, head of monetary policy at the PBOC, during a briefing on Friday. “We will continue with counter cyclical adjustment to create an appropriate monetary and financial environment to stimulate the organic growth momentum of the economy.”
Central bank Governor Pan Gongsheng last week offered a sanguine view of the economy, saying that the property market has shown signs of improvement and that local government debt risks are “manageable.”
Speaking during the International Monetary Fund’s annual meetings in Marrakech, Morocco, Pan cited data on industrial output and services activity that he said showed positive economic trends.
–With assistance from Ocean Hou and James Mayger.
(Updates with economist’s comment, September power consumption.)
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.
Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.
The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.
Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”
Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.
Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.
This report by The Canadian Press was first published Sept. 10, 2024.
