China’s economy performed better than expected in October as retail sales climbed and energy shortages eased, though a slump in property and rising COVID outbreaks show the recovery isn’t on solid ground yet.
Industrial output rose 3.5 per cent in October from a year earlier, while retail sales growth accelerated to 4.9 per cent, beating economists’ forecasts. Growth in fixed-asset investment eased to 6.1 per cent in the first 10 months of the year, with tighter curbs on the real estate market continuing to weigh on the sector. The surveyed jobless rate was steady at 4.9 per cent.
The better-than-expected numbers provides some relief after the economy’s momentum weakened in recent months on the back of energy shortages, Beijing’s reining in of the property market and widespread COVID-19 outbreaks. However, the recovery remains uncertain, given the outsized contribution of real estate — at 25 per cent of GDP when related industries are included — and the disruption to travel and spending from the government’s stringent virus restrictions.
“Overall there is some improvement, especially in the mining and utility industries,” said Lu Ting, chief China economist for Nomura Holdings Inc. “But other areas actually didn’t improve substantially and remain at low levels, especially for investments.”
Lu said rising prices and consumers panic-buying goods at the beginning of October may have contributed to the pickup in retail spending last month. When adjusting for inflation, retail sales rose 1.9 per cent in October from a year ago, a slower pace than in September.
Electricity shortages, which had been a key constraint on industrial output in September, eased last month, with power supply climbing 11.1 per cent in October from a year earlier.
The property slump continued to weigh on output, with production of construction-related commodities, such as steel and iron, contracting. Investment in new construction declined for a fourth month, dropping 7.7 per cent from a year ago.
Separate data from the NBS showed home prices fell 0.25 per cent in October from the previous month, a bigger decline than in September. The benchmark stock index was about 0.3 per cent lower, with property developers declining more after the news on falling home prices.
What Bloomberg Economics Says…
China’s stronger-than-expected October activity offers some assurance the economy is not sliding deeper into a rut, though there’s no sign it’s set for a turnaround. An extra working day in the month was one reason for the better picture. Even accounting for that, output appeared to stabilize.
Chang Shu, chief Asia economist
The NBS said in a statement the economy “was generally stable and maintained the trend of recovery.” It warned that the “international environment is still complicated and severe with many unstable and uncertain factors.”
Iris Pang, chief economist for Greater China at ING Groep NV, said rising COVID cases will continue to weigh on the economy’s outlook.
“The potential for sudden strict domestic travel restrictions means that people are still very hesitant about travel,” she said. “This could continue into the coming Chinese New Year holiday in February 2022.”
The slowdown has put the spotlight back on policy makers, who have so far taken a muted approach to stimulus, preferring to “fine-tune” policies rather than flood the economy with support. In line with that approach, the People’s Bank of China refrained from injecting additional cash into the financial system in its monthly liquidity operation on Monday, rolling over all the loans maturing instead.
Most economists expect Beijing to stick with the property curbs, resulting in weaker growth into next year. GDP growth is expected to slow to 3.5 per cent in the final quarter, reach 8 per cent for the full year and weaken to 5.4 per cent in 2022, according to a Bloomberg survey of economists.
“Growth will likely weaken in the rest of this year,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. “The slowdown in the property sector continued, which is the key risk for the macro outlook in the next few quarters.”
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.
