Officials say GDP grew at its slowest place in a year in the third quarter, amid power cuts, property woes and COVID-19 concerns.
China’s economy grew at the slowest pace in a year in the three months that ended in September, buffeted by power shortages, supply bottlenecks and sporadic outbreaks of COVID-19, increasing pressure on policymakers amid rising concern about the health of the property sector.
Data released on Monday showed gross domestic product (GDP) grew 4.9 percent in the third quarter, compared with a year earlier, the slowest since the third quarter of 2020. The growth was also below economists’ expectations with a Reuters poll of analysts expecting GDP to rise 5.2 percent and a poll by the AFP news agency predicting growth at 5 percent.
“We must note that current international environment uncertainties are mounting and the domestic economic recovery is still unstable and uneven,” National Bureau of Statistics (NBS) spokesman Fu Linghui said on Monday.
China’s economy, the world’s second-largest, expanded 7.9 percent in the second quarter, and 18.3 percent in the first quarter, which benefitted from comparison with the COVID-19-induced slump of early 2020.
Meanwhile, industrial production growth slowed further to 3.1 percent on-year in September.
“Growth was dragged down by a slowdown in real estate, amplified recently by spillover from Evergrande’s travails,” Oxford Economics’ head of Asia economics Louis Kuijs told AFP.
The struggles of property giant Evergrande – struggling with debts amounting to more than $300bn – have been made prospective buyers cautious.
Kuijs noted there was an “additional hit in September” from electricity shortages and production cuts due to the strict implementation of climate and safety targets by local governments.
He added that the damage was visible in the slowdown of industrial output.
Victor Gao, vice president of the Center for China and Globalization in Beijing, told Al Jazeera the latest data was on the “lower side” but added that China remained “confident” it could reach growth of about 8 percent for the year.
“That would make China one of, if not the, best performers among the larger economies in the world,” he said.
Chinese leaders, fearful that a persistent property bubble could undermine the country’s long-term ascent, are likely to maintain tough curbs on the sector even as the economy slows but could ease some measures if needed, policy sources and analysts said.
“In response to the ugly growth numbers we expect in coming months, we think policymakers will take more steps to shore up growth, including accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies,” Kuijs told the Reuters news agency.
Premier Li Keqiang said on Thursday that China has ample tools to cope with economic challenges despite the slowing growth, and the government is confident of achieving full-year development goals.
Retail sales picked up to 4.4 percent – from 2.5 percent in August – with fewer virus containment measures in China, which has imposed swift local lockdowns over a handful of coronavirus cases.
Economists expect inflation reaccelerated to 3.1% in February
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People banking on an interest rate cut may not like the direction Canadian inflation is heading if analyst expectations prove correct.
Bloomberg analysts expect inflation to reaccelerate to 3.1 per cent in February when Statistics Canada releases its latest consumer price index (CPI) data on Tuesday, following a slowdown to 2.9 per cent year over year in January.
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Article contentArticle contentCPI core-trim and core-median, the measures the Bank of Canada is most focused on, are forecast to come in unchanged from the previous month at 3.3 per cent and 3.4 per cent, respectively.
Policymakers made it clear when they held interest rates on March 6 that inflation remained too widespread and persistent for them to begin cutting.
Here’s what economists are saying about tomorrow’s inflation numbers and what they mean for interest rates.
‘Can’t afford missteps’: Desjardins Financial
The Bank of Canada’s preferred measures “have become biased,” Royce Mendes, managing director and head of macro strategy, and Tiago Figueiredo, macro strategist, at Desjardins Financial, said in a note on March 18, “likely overestimating the true underlying inflation rate.”
They estimated the central bank’s preferred measures of core-trim and core-median inflation are overemphasizing items in the CPI basket of goods whose prices are rising more than five per cent. After adjusting for the “biases,” they estimate the bank’s measures are more in the neighbourhood of three per cent — which is at the top of the bank’s inflation target range of one to three per cent.
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Article content“If the Bank of Canada ignores our findings, officials risk leaving monetary policy restrictive for too long, inflicting unnecessary pain on households and businesses,” they said.
Markets have significantly scaled back their rate-cut expectations based on the central bank’s previous comments. Royce and Figueiredo are now calling for a first cut in June and three cuts of 25 basis points for the year.
“Given the tightrope Canadian central bankers are walking, they can’t afford any missteps,” they said.
‘Inflict too much damage’: National Bank
The danger exists that interest rates could end up hurting Canada’s economy more than intended, Matthieu Arseneau, Jocelyn Paquet and Daren King, economists at National Bank of Canada, said in a note.
“As the Bank of Canada’s latest communications have focused on inflation resilience rather than signs of weak growth, there is a risk that it will inflict too much damage on the economy by maintaining an overly restrictive monetary policy,” they said.
They argue there is already plenty of evidence pointing to the economy’s decline, including slowing gross domestic product per capita, which has fallen for six straight quarters. The jobs market is also on the fritz with the private sector having generated almost no new positions since June 2023, they added.
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Article content“Moreover, business survey data do not point to any improvement in this area over the next few months, with a significant proportion of companies reporting falling sales and a return to normal in the proportion of companies experiencing labour shortages,” the economists said.
Despite all these signs of weakness, inflation is stalling, they said, adding it is being overly influenced by historic population growth and the impact of housing and mortgage-interest costs.
The trio expect very tepid growth for 2024 of 0.3 per cent.
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Rising gas prices: RBC Economics
Higher energy prices likely boosted the main year-over-year inflation figure to 3.1 per cent in February, Royal Bank of Canada economists Carrie Freestone and Claire Fan said in a note.
Gasoline prices rose almost four per cent in February from the month before. But the pair believe a weakened Canadian economy and slumping consumer spending mean “price pressures in Canada are more likely to keep easing and narrowing (to fewer items in the CPI basket of goods).
China’s strong factory output and investment growth at the start of the year raised doubts over how soon policymakers will step up support still needed to boost demand and reach an ambitious growth target.
Industrial output rose 7% in January-February from the same period a year earlier, the National Bureau of Statistics said Monday, the fastest in two years and significantly exceeding estimates. Growth in fixed-asset investment accelerated to 4.2%, strongest since April. Retail sales increased 5.5%, roughly in line with projections.
Official economic data out of China for the January and February period came in better than expected. Industrial output rose 7%, higher than the 5% forecast by economists in a Reuters poll, and sped up from the 6.8% growth in December, according to data published Monday by the National Bureau of Statistics.
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Meanwhile, retail sales grew 5.5%, better than the 5.2% predicted by analysts but slowed from the previous period’s 7.4%.
Still, the country’s troubled real estate sector continues to weigh on the economy: Investment in property development fell 9%. Commercial real estate sales are also down double-digit percentages.
“The national economy maintained the momentum of recovery and growth and got off to a stable start,” the statistics office said in its release. Beijing typically releases combined data for January and February to smooth over distortions caused by the Lunar New Year holidays.
China’s shaky domestic demand
Clouding the strong numbers from Monday’s data release are the persistent signs of weak domestic demand in China. New bank lending in China fell more than expected in February, according to Reuters calculations based on People’s Bank of China data.