Economy

China’s Economy Is In for a Bumpy Ride as Covid Zero Comes to an End

Published

2 years ago

December 8, 2022

(Bloomberg) — Three years after the first case of Covid-19 was reported in Wuhan, Chinese policymakers must now grapple with how to live with the virus while keeping the economy growing fast enough to stave off public anger.

With the Covid Zero policy being rapidly dismantled, the threat of economic disruption remains high. Infections are likely to surge, forcing workers to stay home, businesses may run out of supplies, restaurants could be emptied of customers and hospitals will fill up. Even though there’s optimism the economy will recover as China opens up to the rest of the world, the next six months could be particularly volatile.

Goldman Sachs Group Inc. expects below-consensus economic growth in the first half of next year, saying the initial stages of reopening will be negative for the economy, as was the experience in other East Asian economies. Morgan Stanley predicts China’s economy to remain “subpar” through the first half of next year. Standard Chartered Plc said growth in urban consumer spending will still lag pre-pandemic rates next year given the hit to household incomes during the pandemic.

The economy was already in bad shape this year because of the Covid outbreaks and a property market crisis. While China’s zero tolerance approach to combating infections has kept infections and deaths relatively low for most of the pandemic, the rapid spread of the highly infectious omicron variant exposed the challenges of maintaining strict controls. From snap city-wide lockdowns to almost-daily Covid tests, the restrictions have taken a heavy toll on people’s lives and the economy.

That discontent manifested in mass unrest at the end of last month. People in Beijing, Shanghai and elsewhere started to reject demands for quarantines or lockdowns of their housing estates, and between Nov. 25 and Dec. 5, at least 70 mass protests occurred across 30 cities, according to data compiled by think-tank Australian Strategic Policy Institute.

Authorities have moved to quell public anger by relaxing some Covid requirements around testing and quarantine — although the sudden and confusing changes to the rules over the past few weeks have injected more uncertainty about the economy’s outlook.

Here’s a deeper look at the economy’s downturn and the challenges it faces as China exits Covid Zero.

People have been cooped up in their homesChina’s cities have been hit hard by Covid restrictions, with mobility across the country’s 15 largest cities plummeting in recent months, according to congestion data released by Baidu Inc.

Major hubs are showing strain, including the capital Beijing, as well as Chongqing and Guangzhou. Trips there have plunged in recent months below levels in previous years, according to subway data compiled by Bloomberg.

Few have borne the brunt of China’s Covid Zero policy more than the financial hub of Shanghai, a major epicenter for recent protests. After a two-month lockdown this year to tackle a major outbreak, China’s richest city is still struggling to get back up off its knees.

Malls have seen a surge in vacancies, consumer spending has plunged, and spending in areas like food and beverages has been depressed, mirroring the national trend.

Lack of spending has hit the economy hardCovid restrictions have battered the economy, with consumers pulling back on spending and business output plunging. Retail sales unexpectedly contracted 0.5% in October from a year earlier, with economists surveyed by Bloomberg predicting an even worse outcome of a decline of 3.9% in November.

The government is expected to miss its economic growth target of around 5.5% by a significant margin this year. The consensus among economists is for growth of just 3.2%, which would be the weakest pace since the 1970s barring the pandemic slump in 2020.

With onerous testing rules, flare ups in holiday spots, and official advice discouraging travel, holidaymakers have stayed home, adding a further drag on retail spending. Tourism revenue declined 26% to 287 billion yuan ($40.3 billion) over the week-long National Day holiday in October compared to the same period last year. Flight travel also dropped to its lowest levels since at least 2018.

Youth unemployment is near a record high

That’s all combined to drive growing economic malaise among the country’s youth, with the unemployment rate among 16-24 year-olds soaring to a record high of about 20% earlier this year. Joblessness among young people is more than triple the national rate, with many graduates struggling to find work in the downturn, especially in the technology and property-related industries.

Unemployment will likely get worse next year, when a new crop of 11.6 million university and college students are expected to graduate, adding to pressure in the labor market. Factories are still struggling to cope with Covid outbreaks

So far during the pandemic, the industrial sector has held up better than consumer spending since factories were protected from Covid outbreaks and global demand for Chinese-made goods was strong. That’s changing now.

Export demand is plummeting as consumers around the world grapple with soaring inflation and rising interest rates.

The disruption at a major assembly plant in Zhengzhou for Apple Inc.’s iPhones and violent protests there last month also show the damage that outbreaks can have on production.

The housing market crisis continues to simmer

China’s ongoing real estate slump has also been a source of unhappiness for homebuyers. The property market, which has long been a major driver of the country’s economy, is in its worst downturn in modern history, with sales and prices plummeting. Cash-strapped property developers struggled to finish building homes, prompting mortgage boycotts by thousands of buyers in the summer.

Despite authorities introducing a spate of measures recently to help make borrowing easier and ease tight cash flows for developers, the economy’s downturn and lack of confidence mean the housing market continues to be depressed. The slump is not expected to end soon, with Bloomberg Economics expecting a 25% drop in property investment in the coming decade.Local governments are struggling to fund their spending

Government finances have come under severe pressure as the economy slumped. Land revenues have plummeted and local governments have had to boost spending on Covid control measures. The broad measure of the fiscal deficit in the first 10 months of the year is nearly triple the amount it was in the same period last year.

Relaxing testing and quarantine rules will help ease pressure on local government finances. However, it remains to be seen how far and fast authorities will go in dismantling Covid Zero if a surge in Covid cases puts strain on the healthcare system, a likely outcome given that a significant portion of the country’s elderly and vulnerable population are still unvaccinated or lacking booster shots.

–With assistance from Kevin Varley, Jin Wu, Danny Lee and Fran Wang.

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

Published

1 day ago

November 8, 2024

Anne Joseph

OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

Published

3 days ago

November 6, 2024

Anne Joseph

The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

Published

3 days ago

November 6, 2024

Anne Joseph

As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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