It’s highly unlikely that China will implement large-scale stimulus, Mohamed El-Erian said.
Without it, markets shouldn’t expect China’s previous rate of growth to come back, he wrote in the Financial Times.
“Despite what many may continue to tell you, it is no longer a given that China will become the world’s largest economy.”
Bets that the Chinese economy still has a shot at reaching the top might have to be reconsidered, Mohamed El-Erian wrote in the Financial Times.
Though blowout growth of past decades has helped China become the second-largest economy in the world, Beijing’s approach towards the current slump has dampened views that it will overtake the US.
“It is time for the markets to recognize that China is not reverting to its old economic and financial playbook, and its return as a powerful driver of global economic growth is unlikely in the near future,” El-Erian wrote. “Economic performance is likely to remain lackluster for the remainder of 2023 and the first half of 2024.”
After China lifted pandemic restrictions late last year, the economy saw a brief rebound early this year. But since then, consumption, industry activity, investment, and exports have been disappointing, while youth employment hit record highs and prices have tipped into deflationary territory.
Though analysts and investors have loudly voiced hopes that China’s authorities implement a large-scale stimulus program to uplift its economy and fuel domestic spending, Beijing is unlikely to do so in the face of larger structural issues, El-Erian wrote.
That’s because previous stimulus strategies are responsible for high debt levels now seen in China’s local governments and teetering property market. In place of this, the country’s authorities have implemented a series of smaller-level measures.
Leaders are further unlikely to pursue traditional stimulus, out of a worry that continued reliance on it would increase the chances China would fall into the middle-income trap and also encourage corruption, El-Erian wrote.
Instead, he predicted Beijing is likely to continue with smaller-level measures, while looking to transition towards new growth industries, such as green energy, healthcare, supercomputing, and artificial intelligence.
But challenges to growth will persist, and China will have to implement larger debt restructuring measures. Added to that, Beijing may need to rethink its role in domestic markets, El-Erian said:
“The authorities will also need to overcome their now overwhelming inclination towards centralization and, instead, enable but not micromanage the emergence of powerful private sector engines of growth. Despite what many may continue to tell you, it is no longer a given that China will become the world’s largest economy.”
The economists — who previously saw China overtaking the US in the 2030s — believe GDP growth will slow to just 1% by 2050, revised down from an earlier prediction of 1.6%.
(Bloomberg) — German inflation slowed after two months of accelerating as the country’s economic recovery showed signs of stalling.
Consumer prices rose 2.5% from a year earlier in June — down from 2.8% in May and in line with a Bloomberg survey of analysts. Energy costs continued to decline, while goods eased and services, under particular scrutiny now, were unchanged at 3.9%.
Separate reports Friday showed inflation also moderated last month in France and Spain. While picking up a touch in Italy, it remained below 1%. A gauge for the 20-nation euro zone will come on Tuesday, with analysts predicting a slowdown to 2.5% from 2.6%.
The scale of the retreat toward the 2% target will determine how quickly the European Central Bank can lower interest rates following an initial move last month. Other factors weighing on the minds of policymakers include the political turmoil in France and the actions of other major central banks like the Federal Reserve.
In Germany, faltering sentiment may have damped price pressures. Consumers and firms weren’t as optimistic as anticipated on Europe’s biggest economy lately. Private-sector business activity has also been softer than estimated.
Data remain tricky to interpret, however, as the impact of volatile energy costs a year ago washes out of the statistics. The Bundesbank expects inflation to ease slightly until September before picking up again by year-end. While the economy “continues to face headwinds, there are increasing bright spots,” it said last month.
Wage growth poses an upside risk to prices. Negotiated pay increased 6.2% in the first quarter, and demands by Germany’s largest union for a 7% boost for almost 4 million workers in the metal and electric-parts industries suggest pressure will persist.
While the ECB sees inflation in the 20-nation euro zone back at 2% toward the end of 2025, the Bundesbank predicts an average of 2.2% next year for Germany.
Joachim Nagel, who heads the country’s central bank, has warned against complacency — pointing to “still very sticky” underlying prices. He’s stressed that the ECB won’t now automatically lower rates, having made an initial reduction.
In a speech at a Frankfurt conference, he highlighted his nation’s muted economic prospects and appealed to politicians to lay foundations for stronger momentum.
“Although there are some rays of hope and the German economy is slowly regaining its footing, in many international comparisons Germany is lagging far behind in terms of growth — and in some cases is even at the bottom of the league,” he said.
Above all, he added, more investment is needed to master the green transition and capitalize on digital technologies, though there’s been no sign of a spending boom to date.
—With assistance from Kristian Siedenburg and Joel Rinneby.
(Updates with comments from Bundesbank president in last three paragraphs.)
Published Jun 28, 2024 • Last updated 1 day ago • 5 minute read
Jobs vacancies have fallen back to their pre-COVID levels after almost doubling during the pandemic.Photo by Luke Sharrett/Bloomberg
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Job vacancies shrank to pre-pandemic levels as the ongoing decline in openings paints a picture of a labour market that is tightening and an economy that is weakening, new data from Statistics Canada suggests.
Job vacancies, which measure the number of open positions among Canadian employers, fell to 575,400, a 28 per cent drop from April 2023. At the start of 2020, vacancies stood at 582,510. It was also the third consecutive decline in 2024, the agency said in a release on Thursday.
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“Canada’s payroll survey of employment showed that labour market slack continued to open up in April, as … job vacancies dropped off by 32,000,” CIBC World Markets economist Katherine Judge said in a note.
The drop in vacancies also means the number of unemployed people per job rose to 2.3 in April from 2.2 in March.
“The decline in vacancies suggests that businesses are slowing the pace of hiring, likely because of the slow economy,” Charles St-Arnaud, chief economist at Alberta Central, said in an email.
Vacancies were a major point of concern as they soared to more than a million in May 2022 as the economy opened up from the pandemic. Employers found themselves unable to fill positions and were forced to hike pay as they fought to find and keep employees.
While the struggle to fill positions may be easing, the pressures of pay increases persist.
Payroll data released alongside the vacancy numbers showed that average weekly earnings rose 3.7 per cent in April from last year.
Whether employers are truly back in the driver’s seat remains to be seen.
St-Arnaud said more proof of whether that is the case will be available in the upcoming Bank of Canada Business Outlook Survey (BOS), which asks employers about their hiring intentions.
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In the previous BOS, fewer businesses said they were experiencing labour shortages, which was attributed to weaker demand for and a growing supply of available workers.
Economists have been closely watching labour data for signs that the economy is fraying as Canadians pull back on spending to deal with higher interest and inflation rates that are squeezing their pocketbooks.
The most recent labour force survey (LFS) by Statistics Canada, released on June 7, said the economy added 26,700 positions in May, for a net gain during the year of a bit more than 190,000 jobs. However, the unemployment rate has steadily risen this year to 6.2 per cent, from 5.7 per cent in January, as job creation fails to keep pace with the country’s soaring population.
The labour force survey and the vacancy data are distinct because the latter does not include the agriculture sector, private employment or many self-employed positions.
Still, the drop in vacancies could start to play out in the broader market.
“It suggests we could start seeing weaker LFS employment gains in the coming months,” St-Arnaud said.
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Canada experienced record demographic growth last year as new arrivals to the country ramped up and expanded the population by 1.3 million people, the fastest annual pace since 1957.
Now, National Bank of Canada is predicting a “demographic hangover” after Justin Trudeau’s Liberal government announced it was cutting back on the number of foreign temporary residents allowed into the country.
“Recognizing that the situation was becoming increasingly perilous, the federal government recently decided that it was time to take a pause to allow the economy to digest the unprecedented population growth binge of the past two years,” Stéfane Marion, chief economist at National Bank, said in an analysis.
He estimates population growth will significantly slow to 0.7 per cent during the 2025-2027 period from a projected 3.1 per cent increase in 2024, allowing the country to catch up in areas such as infrastructure and housing. However, he predicts regional differences and is calling for population growth in Alberta and Saskatchewan of 1.5 and 1.6 per cent, respectively, from 2025 to 2027.
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The national forecast, while much lower than the past two years, still beats the average of 0.4 per cent population growth for members of the Organization for Economic Co-operation and Development, Marion said.
Today’s Data: Statistics Canada releases gross domestic product for April; U.S. personal income and spending
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Is the country heading towards a recession? Ask 10 economists and you’ll likely get 10 different answers. Which is why some people have given up on the traditional data – GDP, jobs, etc – and have instead recently been tinkering with more unusual economic indicators to help them guide their companies. Here are a few that I’ve seen.
Uniform patches
One known economic indicator is jobs and for that we tend to rely on unemployment numbers from the Bureau of Labor Statistics. But maybe there’s something better. Like the number of uniform patches sold each year. Uniform patches? Yes, those are the emblems that go on the uniforms worn by millions of workers, from fast food cashiers to drywall contractors. The financial data of one of the world’s largest makers of emblems and patches – privately held World Emblem – can’t be easily obtained. But the company’s owner recently told USA Today that sales are up 19% from the same period last year. A recession? “We’re not seeing it,” says Randy Carr, CEO of the Fort Lauderdale, Florida-based company. “It’s hard to believe there would be.”
Men’s underwear
Ask any guy about underwear, and they’ll usually admit the same thing. When times are good, we’re buying the good material. When money’s tight, we’re wearing those things until they literally fall off. So do men’s underwear sales mirror the economy overall? Some – including former Federal Reserve chief Alan Greenspan – think so. If you want to check out how the men’s underwear business is doing you can look at Hanesbrands or PVH Corp (which owns several leading brands, including Calvin Klein and Tommy Hilfiger) or Ralph Lauren Corporation. “Bottom” line: men’s underwear sales have been mostly flat over the past 12 months.
Lipstick
For the most part, lipstick is a relatively inexpensive accessory, with a typical tube costing anywhere from $5 to $20. History has shown that women will cut back on more expensive beauty goods like makeup and perfume when times are tight. But lipstick? Don’t even go there. When lipstick sales increase as luxury beauty item accessories decrease, that’s another potential sign of economic headwinds. Where to research lipstick sales? Try the big cosmetics companies like L’Oreal, Estee Lauder and Ulta Beauty. All three companies have shown strong revenue gains over the past year.
Overseas freight
World shipping has a significant impact on our economy and instead of tracking units and cargo activity, some economists instead track the price of freight. Why? Because in a supply and demand world, the greater the demand for shipping, the more freight should cost. To track this phenomena, look no further than the Baltic Dry Index. This is a well-watched measure of freight costs for shipping items across the Baltic Sea, one of the world’s busiest shipping lanes. So how are freight costs doing? They’re up more than 55% over the past year and even slightly higher than pre-Covid times.
Recreational vehicles
If you’ve never taken a trip in a recreational vehicle (RV), you’re missing out. It’s fun and a great way to explore our national parks. Some economists think that RV sales are an economic indicator because RVs – a luxury item – are not only expensive to buy, but they come with high maintenance costs and tend to calculate gas usage by gallons per mile. So how’s the RV industry doing? Judging by one of America’s largest makers of these vehicles – Winnebago – not so great. Sales have been declining for the past few years and the company’s stock price has fallen 35% in the past year.
I’m only scratching the surface on unusual economic indicators. Besides RVs you can follow the sales of champagne. Instead of men’s underwear you can also track women’s hemlines (which are believed to rise and fall along with the stock market). You can dig into the buttered popcorn index (which some say increases during times of recession as a small bit of a luxury in an otherwise cruel world). You can even keep track of hairstyles in Japan, where some say that women wear their hair longer when times are good and shorter when times are tough. Good luck finding this data, let alone making any sense of it.
Goofy economic metrics like these are fun to talk about with your friends and colleagues. But they shouldn’t be taken seriously. I run a business, and my go-to economic indicator is my clients. I’ve learned that the best way to insulate my business from the economy is to diversify: have as many clients in as many industries and geographic locations as possible. The US is a big country, and even when one client is cutting back on his underwear purchases in Illinois, I’ll likely have another buying uniform emblems in Texas. Focus on this instead of lipstick.
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