BEIJING — China’s factory output and retail sales growth slowed sharply and missed expectations in July, as new COVID-19 outbreaks and floods disrupted business operations, adding to signs the economic recovery is losing momentum.
Industrial production in the world’s second largest economy increased 6.4% year-on-year in July, data from the National Bureau of Statistics (NBS) showed on Monday. Analysts had expected output to rise 7.8% after growing 8.3% in June.
Retail sales increased 8.5% in July from a year ago, far lower than the forecast 11.5% rise and June’s 12.1% uptick.
China’s economy has rebounded to its pre-pandemic growth levels, but the expansion is losing steam as businesses grapple with higher costs and supply bottlenecks. New COVID-19 infections in July also led to fresh restrictions, disrupting the country’s factory output already hit by severe weather this summer.
Asian share markets slipped on Monday after the data showed a surprisingly sharp slowdown in the engine of global growth.
Data earlier this month also showed export growth, which has been a key driver of China’s impressive rebound from the COVID-19 slump in early 2020, unexpectedly slowed in July.
Fu Linghui, an NBS spokesperson, said at a briefing on Monday that China’s recovery remains uneven due to sporadic COVID-19 outbreaks and natural disasters.
“The domestic economic recovery still faces many challenges, and constraints on production increased,” said Fu.
China has tightened social restrictions to fight its latest COVID-19 outbreak in several cities, hitting the services sector, especially travel and hospitality in the country.
“Given China’s ‘zero tolerance’ approach to Covid, future outbreaks will continue to pose significant risk to the outlook, even though around 60% of the population is now vaccinated,” said Louis Kuijs, head of Asia economics at Oxford Economics, in a note.
The country has also faced severe weather in several provinces, with record rainfall in Henan province last month causing floods that killed more than 300 people.
Higher commodity prices are also pressuring small and medium-sized firms in particular. Smaller companies are unable to pass on recent rises in raw material costs to buyers, said a sales manager at a medical equipment factory in the eastern province of Jiangsu.
“We don’t dare to increase our prices…but our prices cannot fall, otherwise there will be no profit at all,” he said.
China’s producer price inflation, which grew 9.0% from a year earlier in July, will likely remain high for some time, the NBS said on Monday.
A growing number of analysts have been cutting their third quarter growth estimates for China. The country’s gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier.
ANZ downgraded its GDP forecast for 2021 to 8.3% from 8.8% after the disappointing July data.
“Although they are unlikely to inject massive stimulus to boost headline growth, the central bank will maintain an easing bias,” said ANZ analysts in a note.
After the central bank reduced the amount of cash banks must hold as reserves in July, many analysts expect another cut later this year to support growth.
China’s central bank injected billions of yuan through medium-term loans into the financial system on Monday, which many market participants interpreted as an effort to prop up the economy, although the cost of such borrowing was left unchanged.
Fixed asset investment grew 10.3% in January-July from the same period a year ago, compared with an 11.3% rise tipped by a Reuters poll and a 12.6% increase in January-June.
Property investment, a crucial growth driver of China’s recovery from COVID-19 disruptions, grew 12.7% in January-July, versus a 15% rise in the first half of this year.
China’s new home prices rose at the slowest clip in six months in July, as authorities further tightened rules in the red-hot property sector. (Reporting by Kevin Yao, Gabriel Crossley, Liangping Gao and Beijing newsroom; Editing by Ana Nicolaci da Costa)
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The Canadian dollar weakened against its U.S. counterpart on Thursday as the greenback notched broad-based gains and investors weighed domestic data showing some weakening in activity.
The loonie was trading 0.3% lower at 1.2675 to the greenback, or 78.90 U.S. cents, after moving in a range of 1.2616 to 1.2698.
Canadian wholesale trade fell by 2.1% in July from June, the biggest decline since April last year, and housing starts were down 3.9% in August compared with the previous month.
“Momentum (in housing starts) has been moderating after unprecedented strength earlier in the year,” Shelly Kaushik, an economist at BMO Capital Markets, said in a note.
Foreign investors are growing more worried that Canada‘s federal election on Monday could result in a deadlock that hampers Ottawa’s response to the COVID-19 pandemic and further slows the economic recovery from the crisis.
The U.S. dollar climbed to a near 3-week high against a basket of currencies after data showing U.S. retail sales unexpectedly increased in August.
The data could ease some concerns about a sharp slowdown in the U.S. economy, ahead of a Federal Reserve policy meeting next week.
U.S. crude prices were unchanged at $72.61 a barrel as the threat to U.S. Gulf production from Hurricane Nicholas receded. Oil is one of Canada‘s major exports.
Canadian government bond yields were higher across the curve. The 10-year touched its highest since Aug. 12 at 1.272% before pulling back to 1.231%, up 1.2 basis points on the day.
(Reporting by Fergal Smith; Editing by Bernadette Baum)
(Bloomberg) — New Zealand’s economy was expanding at a rapid pace before a nationwide lockdown interrupted its momentum, latest data show.
Gross domestic product climbed 2.8% in the second quarter after jumping 1.4% in the first, Statistics New Zealand said Thursday in Wellington. Economists forecast a 1.1% gain. From a year earlier, when the country was in its initial pandemic lockdown, the economy expanded 17.4% against expectations of 16.1% growth.
Today’s report will do nothing to dissuade the central bank from raising interest rates at its next meeting on Oct. 6 as it frets about mounting inflation pressures. While a contraction is expected in the current quarter after an outbreak of the delta strain of coronavirus prompted a three-week national lockdown, last year’s experience shows that demand quickly bounces back when restrictions are lifted.
The New Zealand dollar rose on the data. It bought 71.29 U.S. cents at 10:47 a.m. in Wellington, up from 71.2 cents beforehand.
In its new report released on Wednesday, the agency said that the rebound was highly uneven along regional, sectoral and income lines, however.
During 2022, UNCTAD expects global growth to slow to 3.6 per cent, leaving world income levels trailing some 3.7 per cent below the pre-pandemic trend line.
The report also warns that growth deceleration could be bigger than expected, if policymakers lose their nerve or answer what it regards as misguided calls for a return to deregulation and austerity.
Differences in growth
The report says that, while the response saw an end to public spending constraints in many developed countries, international rules and practices have locked developing countries into pre-pandemic responses, and a semi-permanent state of economic stress.
Many countries in the South have been hit much harder than during the global financial crisis. With a heavy debt burden, they also have less room for maneuvering their way out through public spending.
Lack of monetary autonomy and access to vaccines are also holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another “lost decade”.
“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD.
“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.”
Lessons of the pandemic
UNCTAD includes several proposals in the report that are drawn from the lessons of the pandemic.
They include concerted debt relief and even cancellation in some cases, a reassessment of fiscal policy, greater policy coordination and strong support for developing countries in vaccine deployment.
Women sell fruit and vegetables on a sidewalk in the Philippines, where workers in the informal economy are in danger of having their livelihoods destroyed by the impacts of COVID-19.
Even without significant setbacks, global output will only resume its 2016-19 trend by 2030. But even before COVID-19, the income growth trend was unsatisfactory, says UNCTAD. Average annual global growth in the decade after the global financial crisis was the slowest since 1945.
Despite a decade of massive monetary injections from leading central banks, since the 2008-9 crash, inflation targets have been missed. Even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices.
After decades of a declining wage share, real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again, according to the trade and development body’s analysis.
Food prices and global trade
Despite current trends on inflation, UNCTAD believes the rise in food prices could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis.
Globally, international trade in goods and services has recovered, after a drop of 5.6 per cent in 2020. The downturn proved less severe than had been anticipated, as trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier.
Lack of monetary autonomy and access to vaccines are also holding many developing economies back, by ILO/K.B. Mpofu
The report’s modelling projections point to real growth of global trade in goods and services of 9.5 per cent in 2021. Still, the consequences of the crisis will continue to weigh on the trade performance in the years ahead.
For director of UNCTAD’s globalization and development strategies division, Richard Kozul-Wright, “the pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis.”
“In less than a year, wide-ranging US policy initiatives in the United States have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level.”
The report highlights a “possibility of a renewal of multilateralism”, pointing to the United States support of a new special drawing rights (SDR) allocation, global minimum corporate taxation, and a waiver of vaccine-related intellectual property rights.
UNCTAD warns, though, that these proposals “will need much stronger backing from other advanced economies and the inclusion of developing country voices if the world is to tackle the excesses of hyperglobalization and the deepening environmental crisis in a timely manner.”
For the UN agency, the biggest risk for the global economy is that “a rebound in the North will divert attention from long-needed reforms without which developing countries will remain in a weak and vulnerable position.”
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