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China's economy is still months away from a full recovery, business survey finds – CNBC

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Containers and trucks at the port of Qingdao, China on February 14, 2019.
Reuters

BEIJING — China has not fully recovered from the shock of the coronavirus pandemic, business leaders said in a survey by the China Beige Book released Tuesday.

After about a year since Covid-19 first emerged in the Chinese city of Wuhan, roughly two-thirds of executives polled by the third-party firm said they don’t expect sales, profitability and hiring to return to 2019 levels until at least three months from now.

China Beige Book conducted more than 3,300 interviews between Nov. 12 and Dec. 11 in its latest quarterly business activity survey.

The survey’s tepid outlook contrasts with generally optimistic forecasts for China, the only major economy in the world expected to grow this year in the wake of the pandemic.

Government commentary in the last few weeks have also signaled concerns about overall economic growth. While economists predict China’s gross domestic product will likely expand about 2% this year, consumers have so far spent less than they did last year as many remain uncertain about future income.

Credit concerns and trade tensions

For the fourth quarter, the China Beige Book found sharp drops in sales growth for luxury goods, food and apparel compared to the prior quarter.

“Firms in these sub-sectors noted narrower margins as well as weaker sales volumes and hiring growth,” the report said.

That was in contrast with the better performance of auto dealers and vendors for furniture and appliances, indicating that richer households might be boosting overall consumption by spending on big-ticket items, the Beige Book noted.

Creditors were also more concerned about retail businesses. While the loan rejection rate held fairly steady among most sectors — around 10% to 20% — that of the retail industry surged to 38% in the fourth quarter, the report said.

Domestic demand is a key part of Beijing’s plan for sustainable economic growth in the coming years. China has been trying to rely more on its own consumers for growth, rather than on exports, especially amid increased tensions with major trading partners such as the U.S.

China still a bright spot but outlook tentative

In the services sector, the China Beige Book also found that fourth-quarter gains were not driven by consumers, but by industries meeting business needs such as telecoms, shipping and financial services.

Chain restaurants didn’t see as much growth, while travel saw no growth and hospitality recorded the weakest revenues, the report said.

The Beige Book also pointed out that compared with a surge in exports, China’s imports have stalled since an initial recovery from the shock of the first quarter.

The Chinese market remains a bright spot for companies worldwide after the country was able to control the outbreak domestically and return to overall growth by the second quarter.

But scattered Covid-19 cases, most recently in the capital city of Beijing in the last two weeks, as well as the virus’ persistent spread overseas mean the pandemic is an uncertainty for Chinese authorities and businesses.

China’s full-year economic data for 2020 is due out Jan. 18, according to the National Bureau of Statistics’ website.

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Economy

Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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