(Bloomberg) — Shanghai’s sweeping, two-phase lockdown will likely deal a heavy blow to businesses reliant on consumer spending, though economists say the city’s industrial sector can largely withstand the disruption, mitigating threats to the global supply chain.
The staggered eight-day lockdown in Shanghai — a city of 25 million people — and lingering effects from the measure may shave up to 0.4 percentage point from China’s economic growth in the first and second quarter, compared to a year ago, according to estimates by Liu Peiqian, China economist at NatWest Group Plc.
The restrictions targeting half of the city at a time will bar the city’s residents from leaving home, an attempt to curb China’s worst Covid outbreak since Wuhan in early 2020. That will likely hurt employment in the services industry and weigh on small businesses the most.
“Covid suppresses people’s confidence and expectations for spending,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. He also pointed to impacts on industries that rely on in-person and social gatherings, especially catering.
Liu, whose forecast for gross domestic product growth in the first quarter is 4.7%, said the “gradual recovery” of the services and consumption sectors could take eight weeks.
As a major financial and trade hub, Shanghai contributes 3.8% to the country’s GDP. It’s also the second-richest city, trailing only Beijing, according to the latest available figures from the National Bureau of Statistics.
The impact on the supply chain will likely be temporary as long as the lockdown doesn’t last longer than three weeks, according to Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.
He said a so-called closed loop system tested in Shenzhen — where factory workers are living in dorms, working in a bubble separate from the general public — has lessened the impact on the economy. The southern technology hub of Shenzhen resumed normal operations Sunday, about two weeks after the government placed its 17.5 million residents under lockdown.
“Similar to Shenzhen, Shanghai is the economic powerhouse of the country,” Yeung said. “The scale is obviously larger but the action is swift, hoping to minimize the economic impact as soon as possible.”
The Shanghai port, the world’s largest, is still operating around the clock, according to local media reports. Chinese chipmaker Semiconductor Manufacturing International Corp is maintaining normal production at its facility in the city, and is complying with Covid prevention measures.
Tesla Inc., meanwhile, suspended production Monday, Bloomberg News reported. The American carmaker hasn’t yet informed employees whether that halt will be extended.
Larry Hu, an economist at Macquarie Capital Ltd., said policy makers will have “no choice but to step up stimulus in the coming months” in order to meet a GDP growth target of about 5.5% this year.
“We maintain our annual GDP forecast of 5%, as more policy easing would come through,” he said, predicting a benchmark interest rate cut in April, as well as more support for infrastructure and property sectors.
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.
