(Bloomberg) — China’s key indicators this week will likely show the economy worsened in November, putting it in a vulnerable position as Beijing’s sudden pivot away from Covid Zero brings more disruption to growth.
Economists surveyed by Bloomberg News predict a bigger contraction in retail sales than in October, a slowdown in factory output and investment, and an increase in unemployment. The data are scheduled to be released by the National Bureau of Statistics on Thursday.
Covid infections are spreading rapidly, including in the capital Beijing, and will likely surge further in the coming weeks and months after China abandoned stringent testing and quarantine rules that helped keep cases and deaths under control for most of the pandemic.
Policymakers are shifting their focus away from Covid Zero toward boosting growth next year, suggesting more fiscal and monetary action may be on the cards. The central bank will have an opportunity to add stimulus this week when it holds its monthly liquidity operation, but economists don’t expect a cut in interest rates yet.
To better gauge China’s economic performance, here’s a guide of what to watch out for in Thursday’s data:
Weak Consumption
November saw a surge in Covid cases and strict rules including lockdowns in several cities to bring infections under control. Retail businesses reliant on face-to-face interaction, like restaurants and hotels, likely suffered the most.
Economists surveyed by Bloomberg predict retail sales declined 4% in November from a year earlier — the biggest drop since the Shanghai outbreak in the second quarter and worse than October’s fall of 0.5%.
Car sales, a key component of retail sales and a rare bright spot in recent months, took a major hit in November, plunging 9.5% from a year earlier, according to China’s Passenger Car Association.
The annual Singles’ Day shopping festival that takes place each November failed to boost retail sales. Alibaba Group Holding Ltd. didn’t disclose full sales results from its e-commerce platform for the first time, after forecasts showed an unprecedented decline.
Factory Slide
Manufacturing hubs like Guangzhou and Zhengzhou enforced snap lockdowns in November, disrupting business activity and supply chains.
Hon Hai Precision Industry Co., known as Foxconn, reported a 11.4% drop in sales last month after shipments were affected by an outbreak at its iPhone assembly complex in Zhengzhou, where lockdowns, a worker exodus and violent protests snarled operations.
Factory output likely grew 3.5% in November from a year earlier, according to economists surveyed by Bloomberg, down from 5% growth in October.
On top of the Covid disruptions, global demand for exports has plummeted, curbing manufacturing output in China. Exports from China contracted almost 9% in November, the biggest decline since February 2020.
Investment Slowdown
With most other growth engines sputtering, China’s investment in property, manufacturing and infrastructure has become a bigger driver for the economy.
Infrastructure investment likely continued to grow strongly in November as the government ramped up support for projects. Property investment probably remained weak amid an ongoing slump in the real estate market, even though authorities have recently outlined several rescue measures for the industry.
Economists predict fixed asset investment likely expanded 5.6% in the first 11 months of the year compared with the same period last year, down from 5.8% in the January-October period.
Unemployment Climbs
Jobs figures remain a key focus as businesses in China have been forced to shed workers, freeze hiring or even close their doors — temporarily or permanently.
The surveyed unemployment rate likely climbed to 5.6% after staying unchanged at 5.5% for two months. It’s also above ceiling of under 5.5% the government set for all of 2022.
Whatever the headline figure may be, further details about the jobless rates for the most vulnerable groups — including young people and migrant workers — will shed more light on the true extent of unemployment pain.
The surveyed jobless rate for those aged 16-24 hit a record high of 19.9% in July and remains elevated at 17.9%.
Policy Loans
The People’s Bank of China will have another opportunity to ramp up support for the economy on Thursday after it earlier cut the amount of cash banks must hold in reserve, injecting liquidity into the market.
Four of the seven economists surveyed by Bloomberg expect the central bank to fully roll over 500 billion yuan ($71.7 billion) worth of maturing one-year policy loans, known as the medium-term lending facility. Another two predict a slight net withdrawal of 100 billion yuan, and one sees a net injection of 300 billion yuan.
The PBOC may want to maintain ample liquidity, analysts say, after the Covid Zero pivot spurred a rapid sell-off in government bonds and roiled the credit market.
More significant easing, though, is likely off the table. The PBOC will refrain from lowering the rate on MLF loans, and instead keep it steady at 2.75%, according to all 14 economists surveyed.
The cut to the reserve requirement ratio for banks, though, has led to higher expectations for a reduction in the five-year loan prime rate — a reference for mortgage rates. That could be trimmed later this month, even in the absence of a policy rate cut.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
