China’s Economy Returns to Growth Amid Global Virus Struggle
(Bloomberg) — The Chinese economy returned to growth in the second quarter, marking an important milestone in the global struggle to climb out of the slump brought about by the coronavirus.
Gross domestic product expanded 3.2% in the three months to June from a year ago, reversing a 6.8% decline in the first quarter and beating the median forecast of 2.4%. However, the world’s second biggest economy remains 1.6% smaller than a year ago.
Having shut its economy in the first quarter to arrest the virus spread and managed so far to largely defeat subsequent outbreaks, a conservative stimulus approach by policy makers has produced only a modest domestic recovery.
The rebound has been largely industry-driven, while consumer spending was weaker than expected. It also remains vulnerable to setbacks in foreign demand as lockdowns continue to hamper activity abroad.
The CSI 300 Index fell 1% at 10:54 a.m. local time, heading for the first three-day loss since May, further evidence that the recent exhuberance in Chinese stocks is fading.
Further details from Thursday’s data release:
Industrial output rose 4.8% from a year earlier, matching the median estimateRetail sales shrank 1.8%, weaker than a projected 0.5% increaseFixed-asset investment shrank 3.1% in the first half of the year, versus a forecast drop of 3.3%In the first half of the year, industrial output was 1.3% smaller, while retail sales shrank by 11.4%The surveyed urban jobless rate fell to 5.7%
The recovery “was driven by credit stimulus as evident in the strong infrastructure and property investment, while the recovery in retail sales and private investment has continued to lag,” said Michelle Lam, greater China economist at Societe Generale SA in Hong Kong. “Policymakers will probably save bullets and hold back broad-based easing and find the current growth trajectory acceptable.”
China Home Prices Rise Most in 10 Months, More Curbs Imposed
A raft of measures have been rolled out since the pandemic to shore up the economy, including tax and fee cuts, cheaper loans, and increased fiscal spending. Stimulus has still fallen far short of the policies offered in developed economies, out of concern for debt buildup and financial stability.
The poor retail picture may be less negative than the headline data indicate. Sales of cosmetics, beverages, telecommunication equipment, daily use articles and alcohol and tobacco all posted double-digit increases. Autos and petroleum-products posted large declines though were likely influenced by one-off factors.
Policy makers are also signaling that monetary and fiscal policy won’t become much more supportive, as long as credit growth continues its upward trend.
Private companies were still cutting back on investment in the first half of the year, while spending by state-owned firms saw a big jump in June, rising 2.1% in the first six months after falling 1.9% through May. Manufacturing investment was down almost 12%.
“China’s economy has gradually overcome the negative impact brought by the virus in the first half, showing recovery momentum,” Liu Aihua, NBS spokesperson, said in Beijing after the data was released. “The recovery of the domestic economy still faces pressure amid rising external challenges.”
Debt levels in the real economy continued to rise in the second quarter albeit at a slower pace than in the first three months. The ratio stood at 265.4% at the end of June, versus 258% in March, according to Bloomberg calculations.
What Bloomberg’s Economists Say…
China’s economy bounced back strongly in 2Q – but now the challenge will be to sustain the recovery. “Continued momentum in June production bodes well for growth in 2H. But weak consumer spending remains a serious, persistent drag.”
— Chang Shu and David Qu
A major headwind to the recovery is the level of unemployment created by the collapse in manufacturing in the first quarter. The surveyed unemployment rate doesn’t capture the full impact, and tens of millions may still be out of work due to the pandemic.
Fighting unemployment and creating jobs are one of the main focuses of the government since the pandemic broke out. Premier Li Keqiang said earlier this week China needed to prepare for “tough challenges ahead, especially posed by the high employment pressure and other difficulties confronting the economy.”
Another headwind for the government is the increasing efforts of the U.S. to isolate China, banning its own firms from doing business with some Chinese companies and entities, and also pushing other nations to do the same. In a recent letter that was reported Thursday, President Xi Jinping appealed to global CEOs to continue doing business in China, promising to deepen reform and opening up.
Economists stressed the uneven nature of the recovery and the risks ahead.
“The message is clear here that China’s recovery is much stronger than the rest of world, largely benefiting from the effective epidemic control and the orderly normalization procedure,” said Zhu Haibin, Chief China Economist at JPMorgan Chase and Co. “In the second half, the momentum of further recovery will be softer.”
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
