(Bloomberg) — China’s manufacturing activity likely remained subdued in November, with weak domestic demand in the economy outweighing any relief that came from an easing in energy shortages.
The official manufacturing purchasing managers’ index is forecast to improve slightly to 49.7 from 49.2 in October when it’s released Tuesday, according to the median estimate in a Bloomberg survey of economists. That would be the third month it stays below the key 50-mark, indicating a contraction in production.
The non-manufacturing gauge, which measures activity in the construction and services sectors, is forecast to fall to 51.5 from 52.4 in the previous month.
China’s energy shortages, which ravaged factory production in September and October, likely eased this month as coal producers boosted output and inventories rose. However, the housing market crisis shows no signs of ending, and frequent Covid-19 outbreaks continue to curb consumption.
“Supply-side restrictions have improved marginally, so production likely rebounded somewhat,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. But there’s “not much positive signal on domestic demand,” which continued to weigh on activities, he said.
Economic growth is forecast to slow to 5.3% next year, according to a Bloomberg survey median, with some economists seeing expansion as low as 4%. Bloomberg Economics forecast growth will come in at 5.7%, as the government will likely target a 5-6% range.
What Bloomberg Economics Says…
“In 2021, policy played a secondary role in setting the growth trajectory. In 2022, it will be pivotal. The extent of the slowdown will hinge largely on what balance China strikes between supporting short-term growth and advancing long-term reforms.
…We see the People’s Bank of China cutting the interest rate on its one-year medium-term lending facility by 20 basis points and the reserve requirement ratio by 100-150 bps by end-2022.”
— Chang Shu and David Qu
For the rull report, click here
Authorities are trying to moderate the sharp downturn in the property market, while providing targeted support to areas such as small businesses and green technology. Officials will reveal more clues on how much policy easing they plan to provide during two key political meetings in December by the Politburo and the Central Economic Work Conference.
China will adopt a more proactive macroeconomic policy next year to respond to the challenges from an uneven recovery of the global economy and instability in containing the pandemic, the Securities Times, run by the People’s Daily, said in a front-page commentary Monday.
Authorities have exercised restraint in using monetary and fiscal tools amid an economic slowdown this year, thus creating sufficient space for policy maneuvering next year, according to the commentary.
The slowdown is being cushioned by strong export demand, which likely remained solid in November, judging by latest shipment figures from South Korea.
Consumption and travel continues to be affected by a resurgence in virus cases and the country’s growing determination to stick to its strict Covid Zero strategy. Subway passenger traffic in six major cities of China declined less than 10% in November from October, though the plunge is smaller than that over the August outbreak, according to Xing.
(Updates with latest estimate in second paragraph.)
©2021 Bloomberg L.P.
Economic outlook: 'They say it's not, but it's hot!' – Export Development Canada
Prices are rising at a faster rate than we’ve seen in almost 40 years. Waved off at first as a temporary problem, central banks are tackling this head-on with tighter monetary policy. Expectations are now aligned around the fast tapering of quantitative easing programs, earlier and more rapid interest rate increases, and possible balance sheet reductions. This has financial markets and consumers braced for imminently tighter access to financing. A risk to the outlook is that current demand-led price growth moves into wage and other contract settlements, which will be harder for central banks to neutralize or reverse without more stringent monetary action.
Fiscal policy is also likely to become more stringent. This won’t be just in Canada; almost every Organisation for Economic Co-operation and Development (OECD) nation will be in the same fix. Pandemic stimulus has caused debt to balloon well beyond previously acceptable limits and governments everywhere will be under pressure to roll back stimulus and get their finances on a more sustainable trajectory before higher interest costs exacerbate the problem. Thankfully, they’ll be able to do this at a moment of economic strength, which will at least help on the revenue side.
International trade is generally benefiting from a strong world economy and consequently, Canada experienced surging growth in the dying months of 2021. Pent-up demand will power trade activity through 2022 and 2023, especially as supply chain constraints begin to diminish toward mid-year. Protectionism, in its many overt and more subtle forms, is expected to gradually give way to strong demand conditions. There’s definitely enough activity for everyone for at least the next two to three years.
This all adds up to impressive forecast numbers. Developed markets are projected to grow well above their long-term trend, collectively rising by 4.1% this year and by 3% in 2023. Likewise, emerging markets will see impressive growth in the wake of last year’s rebound, together expanding by 5.3% in 2022 and a further 5% next year. This puts 2022 global growth at a robust 4.8%, which will then moderate to a still-high 4.3% for 2023.
Demand conditions will keep commodity prices higher than initially expected and definitely higher than sustainable levels in the long term. The price of West Texas Intermediate crude oil is projected to average US$71 this year and US$65 in 2023. Gas prices will follow the same pattern, coming off current highs as Western European supplies are replenished. Copper prices will face continued upward pressure owing to immediate supply constraints, and increased structural demand as a result of higher global resolve to shift from fossil fuels to cleaner, copper-intensive forms of energy generation and transportation. Copper prices are projected to average US$8,997 this year, edging down slightly to US$8,287 in 2023.
Higher commodity prices are putting upward pressure on the Canadian dollar, although that’s being offset somewhat by shifts in expectations for monetary policy movements here and elsewhere. The Bank of Canada was initially more hawkish in its policy actions, boosting the loonie’s value against the U.S. dollar and the euro. But with the Federal Reserve and the European Central Bank now messaging tighter monetary actions, the Canadian dollar has eased back and is now expected to average US$0.79 this year and US$0.80 in 2023.
The bottom line?
Pandemic-fuelled uncertainty created broad expectations of a sluggish recovery. In contrast, growth is booming. Caught by surprise, global business is scrambling to ramp up production to meet demand. Supply chains, normally fine-tuned to perfection, are a mess, but will soon pull themselves back together. Inflation, perhaps the clearest signal of the economy’s strength, will moderate as central banks swing into action. At the same time, the effects of the Omicron variant threaten to delay the economy’s progress—and perhaps create space to better prepare for the inevitable upswing in activity. It’s all a bit chaotic, but the core story is a good one: There are clear rewards for those who are more prepared to deliver the goods over the next two years. Check out EDC Economics’ latest Global Economic Outlook and discover more valuable insights.
Launching Zero Waste Economic Transformation Lab – guelph.ca
Co-operators contributes $350,000 to fund lab start-up and first project
Guelph, Ont., January 20, 2022 – Today, representatives from Co-operators, the City of Guelph, Wellington County and the Guelph Smart Cities Office launched the Zero Waste Economic Transformation Lab, a new initiative under the Circular Opportunity Innovation Launchpad (COIL).
The lab will apply circular economy theories to develop and test new opportunities to reduce or redirect waste. As the lab’s founding corporate supporter, Co-operators is pledging a $350,000 investment to establish the lab and fund its first project to divert construction and demolition materials from landfill. Ongoing operations will be funded through public and private grants and corporate investments.
The commitment from Co-operators represents a unique local public-private sector collaboration to tackle factors contributing to climate change. It will also help extend the range of tools and innovation infrastructure developed by COIL and Our Food Future since 2019, adapting them to the construction and demolition sector as well as others in the future.
“Co-operators is committed to embedding sustainability into all areas of our business. We are especially excited that through COIL, we can help to sustainably divert materials away from landfills and keep them in the local economy,” says Chad Park, vice president of Sustainability and Citizenship at Co-operators. “Through this collaborative effort, we can reduce the environmental, social, and financial costs to governments, businesses and Canadian communities, while making them more sustainable and resilient.”
“We know that 45 per cent of global carbon emissions are generated when we manufacture new products, and construction materials are particularly resource intensive,” says Barbara Swartzentruber, executive director of the Smart Cities Office. “Redesigning systems to recycle and extend the life of materials is an essential part of fighting climate change and aligns with Guelph’s climate change objectives.”
The lab’s projects will bring together researchers, industry stakeholders, entrepreneurs and government to reduce waste in specific material sectors, including salvaged materials from properties following insurance claims.
As with Our Food Future, another Smart Cities initiative, COIL’s lab will focus on designing scalable systems-level solutions that create new social, economic and environmental benefits.
“Our comprehensive circular economy approach considers not only the reuse, recovery and recycling of materials that were previously wasted, it addresses processes and decisions that prevent waste generation across an entire value chain,” says David Messer, manager, COIL.
The Zero Waste Economic Transformation Lab’s projects will follow a process that can be replicated and applied across all waste streams in industries such as textiles, plastics and electronics. The lab will work with other cities, labs and circular economy innovation organizations across Canada to share best practices, advise on future strategies and collectively advance sector transformation using the circular economy approach.
The lab’s current national collaborators and advisors include:
“This is an incredible example of public-private sector collaboration. It’s fantastic to see a major local employer stepping up and working together with the City of Guelph and County of Wellington to tackle this global issue.”
Cam Guthrie, Mayor, City of Guelph
“This program will also help the County come closer to achieving our sustainability objectives, environmental visioning and economic growth plans by creating jobs and helping businesses with their waste challenges.”
Jana Burns, Wellington Place Administrator, Museum, Archives and Economic Development, Wellington County
“More broadly, however, this program will play an important role in supporting several key priorities within Guelph’s Strategic Plan as well as wider city priorities. It will accelerate partnerships and innovations in our economy. And it will further integrate businesses into our community and cultural fabric.”
Scott Stewart, Chief Administrative Officer, City of Guelph
Launched in April 2021 with $5 million in funding from the Federal Economic Development Agency for Southern Ontario (FedDev Ontario), COIL is an innovation platform and activation network aimed at creating, proving and scaling transformative solutions across the food and environment sectors in southern Ontario that will move Canada toward a more sustainable, circular economy.
COIL builds on the Our Food Future Smart Cities initiative which is close to meeting its goal of creating 50 new circular businesses and collaborations.
Funding for COIL program participants is provided in collaboration with 10C’s Harvest Impact Fund, a community social finance fund developer with Our Food Future aimed at supporting impactful projects to strengthen the Guelph and Wellington communities.
Co-operators is a leading Canadian financial services co-operative, offering multi-line insurance and investment products, services, and personalized advice to help Canadians build their financial strength and security. The company has more than $61.5 billion in assets under administration. Co-operators has been providing trusted guidance to Canadians for the past 76 years. The organization is well known for its community involvement and its commitment to sustainability. Achieving carbon neutral equivalency in 2020, the organization is committed to net-zero emissions in its operations and investments by 2040, and 2050, respectively. Co-operators is also ranked as a Corporate Knights’ Best 50 Corporate Citizen in Canada and is listed among the Best Employers in Canada by Kincentric.
About Our Food Future
Inspired by the planet’s natural cycles, a circular food economy reimagines and regenerates the systems that feed us, eliminating waste, sharing economic prosperity and nourishing our communities. In Guelph-Wellington, we are working to build a regional circular food economy that will achieve a 50 per cent increase in access to affordable nutritious food, 50 new circular economy businesses and collaborations, and a 50 per cent increase in circular economic benefit by unlocking the value of waste.
Our Food Future is one of the ways the City of Guelph and Wellington County are contributing to a sustainable, creative and smart local economy that is connected to regional and global markets and supports shared prosperity for everyone.
David Messer, Manager, COIL
Smart Cities Office, Office of the Chief Administrative Officer
City of Guelph
519-822-1260 extension 3661
Opinion | Economic Trends Aren't What They Used to Be – The New York Times
Back in 2010 a group of conservative academics, economists and money managers signed an open letter warning that the efforts of the Federal Reserve to support the economy would be dangerously inflationary. But the inflation never came. So four years later Bloomberg reached out to as many of the signatories as they could, to ask what happened.
Not one was willing to admit having been wrong.
I don’t want to be like those guys. So I’m currently spending a fair bit of time trying to understand why my relaxed view of inflation early last year has been refuted by events. What I want to do today is share where I am now on that topic, and what my current take says about future policy.
Last spring the debate was focused on the American Rescue Plan, the Biden administration’s large spending package. A number of economists, including Larry Summers, Olivier Blanchard, and Jason Furman, warned that this package would overstimulate the economy — that output and employment would soar to levels that would create a lot of inflationary pressure.
Those of us on the other side argued that the risks of excess spending were much less than they warned — that large parts of the Biden package, like aid to state and local governments, would end up being disbursed gradually over time and therefore not have that much of an inflationary impact. To use the jargon, I argued that the A.R.P. would have a low “multiplier.”
So here’s the funny thing: The multiplier does indeed seem to have been low. The economy has expanded fast, but it started in a deep hole, and at this point is still if anything a bit below its prepandemic trend.
Here, for example, is real gross domestic product:
The Congressional Budget Office regularly publishes projections of “potential” G.D.P. — the level of output consistent with stable inflation. So far the official numbers through the third quarter of 2021, extended by private estimates of growth in the fourth quarter, still put us slightly below what we thought the economy’s potential was going to be.
Here’s another number, the employment rate of prime-age adults, which has generally been a good indicator of the state of the labor market (probably better than the unemployment rate):
We’ve seen a strong recovery in employment, but we’re still significantly below prepandemic levels.
The point is that if you had told me a year ago that this is what current output and employment numbers would be, I wouldn’t have predicted soaring inflation. To put it another way, my expectations of a relatively muted effect of government outlays on demand were more or less vindicated. But of course my expectations of moderate inflation weren’t. So what happened?
Part of the answer lies in supply-chain issues. Overall demand hasn’t grown all that fast, but fear of face-to-face interactions has skewed demand away from services toward goods, overstraining shipping and in some cases manufacturing capacity. These issues account for a lot of recent inflation, but in a way they don’t worry me too much: The private sector has huge incentives to get stuff moving, so sooner or later supply-chain issues will fade away.
However, it’s not just the supply chain; it’s obvious that we’re now experiencing widespread labor shortages even though employment is still below its prepandemic trend.
I mentioned that the employed percentage of prime age adults has generally been a good indicator of the state of the labor market. Another good indicator is the rate at which workers are quitting their jobs: Quits are high when people believe that new jobs are easy to find. Normally these two measures move in tandem; but something has changed.
Here’s a scatter plot of the prime-age employment rate against the quit rate since 2001; the blue dots represent the prepandemic era, the red dots the era since early 2020:
You can see the close relationship between the two measures before 2020. Since then, however, the relationship seems to have shifted, so that a labor market that seems only OK judging by the employment rate looks extremely tight judging by the number of people who are quitting. And wages are rising rapidly, which suggests that quits are telling the real story.
What we’re seeing, of course, is the Great Resignation — which is also, to an important extent, a Great Retirement. A recent blog post from the International Monetary Fund shows that there has been a surge in the number of older Americans (and Britons) choosing not to be in the labor force. (Memo to the IMF: That’s a rather unfortunate acronym you’ve chosen there.)
Now, a labor market in which jobs are easy to find and workers can bargain for higher wages is a good thing. But the fact that labor markets are so tight even though employment and real G.D.P. are below prepandemic projections suggests that we can’t rely on those projections to assess the economy’s productive capacity. For whatever reason or reasons — presumably reasons linked to Covid — the U.S. economy apparently can’t sustainably produce as much as we expected.
And that in turn tells us that it’s time for policymakers to pivot away from stimulus — in particular, that the Federal Reserve is right to be planning to raise interest rates in the months ahead. As I read the data, they don’t call for drastic action: the Fed should be taking its foot off the gas pedal, not slamming on the brakes. But that’s a story for another day.
For now, the moral is that Covid-19 means that we can’t assess where we are simply by comparing our situation to the prepandemic trend. That trend, at least, no longer appears to be our friend.
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