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China’s Economy Returns to Growth Amid Global Virus Struggle

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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.”

(Updates with retail breakdown)

Source:- Yahoo Canada Finance

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German economy grew by 8.5% in third quarter, but recession fears grow – The Guardian

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BERLIN (Reuters) – Germany’s gross domestic product grew by a record 8.5% in the third quarter as Europe’s largest economy partly recovered from an unprecedented plunge caused by the first wave of the COVID-19 pandemic in spring, the statistics office said on Tuesday.

The stronger-than expected rebound was mainly driven by higher household spending and soaring exports, the office said.

“This enabled the German economy to make up for a large part of the massive decline in gross domestic product caused by the coronavirus pandemic in the second quarter of 2020,” it added.

The reading marked an upward revision to an earlier flash estimate of 8.2% growth, and followed a 9.8% plunge in the second quarter.

The outlook is clouded by a second wave of coronavirus infections and a partial lockdown to slow the spread of the disease. Restaurants, bars, hotels and entertainment venues have been closed since Nov. 2, but shops and schools remain open.

Chancellor Angela Merkel and regional state premiers are planning to extend the “lockdown-light” on Wednesday until Dec. 20, according to a draft prepared for their meeting.

A contraction in the service sector is expected to weigh heavily on gross domestic product in the fourth quarter, while lockdown measures in other countries are likely to hit export-oriented manufacturers as well.

DIW economist Claus Michelsen said a decline in economic output was therefore on the cards, with initial estimates indicating a GDP drop of around 1% in the final quarter.

“Germany and many important trading partners are likely to slide back into recession,” Michelsen said.

(Reporting by Michael Nienaber and Rene Wagner; Editing by Riham Alkousaa and EKevin Liffey)

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No-deal Brexit would be worse for the UK economy than Covid-19, says Bank of England governor – CNN

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“I think the long-term effects … would be larger than the long-term effects of Covid,” Bailey said Monday in response to a question from a lawmaker on what would happen if the UK government does not complete a deal before the December 31 deadline.
“It takes a much longer period of time for what I call the real side of the economy to adjust to the change in openness and to the change in profile in trade,” Bailey added in testimony before parliament’s Treasury committee.
The United Kingdom left the European Union in January. But the £670 billion ($895 billion) trade relationship has been largely unaffected so far because of a transition period that expires at the end of this year. Negotiators have been trying to hammer out a deal that will allow for tariff-free trade to continue. But progress has been slow, and chief EU negotiator Michel Barnier warned on Monday that “fundamental differences” still need to be resolved.
UK business groups are pushing Prime Minister Boris Johnson to secure a deal, saying that many companies have been stretched to the breaking point by the coronavirus and another round of lockdowns. Without an EU deal, UK-based firms face hefty tariffs, quotas and other barriers to doing business with the country’s biggest export market starting on January 1.
The Bank of England forecast earlier this month that the UK economy will shrink by 11% in 2020. Economists are worried about “scarring” caused by coronavirus, but Bailey said on Monday that he was optimistic about the economy’s ability to recover relatively quickly from the pandemic.
A change in the terms of trade with the European Union would produce more lasting upheaval, he suggested, comparing that outcome with modeling the central bank did decades ago showing it would have taken the UK economy between 30 and 40 years to adjust if policymakers had decided to drop the British pound and switch to the euro.
The UK government and the Bank of England have unleashed hundreds of billions of pounds worth of stimulus to help cushion the blow to business and workers from the pandemic.
Earlier this month, the central bank said it would increase its purchases of UK government bonds by £150 billion ($195 billion) to £875 billion ($1.1 trillion), and finance minister Rishi Sunak extended a furlough program through March 2021. The government will pay 80% of the wages of employees of businesses forced to close, capped at £2,500 ($3,270) per month.
Sunak said on Sunday that the economic situation in the country presents “a very difficult picture.”
“The economy is experiencing significant stress,” he told the BBC. “We’ve seen that particularly in the labor market, with people’s jobs. We know that three quarters of a million people have tragically already lost their jobs with forecasts of more to come. Borrowing … is at record peacetime levels and more stress to come.”
Sunak will deliver an update on the economic situation on Wednesday and sketch out his plans for borrowing and spending after the pandemic.

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German economy grew by 8.5% in third quarter – TheChronicleHerald.ca

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BERLIN (Reuters) – Germany’s gross domestic product grew by a record 8.5% in the third quarter as Europe’s largest economy partly recovered from an unprecedented plunge caused by the first wave of the COVID-19 pandemic in spring, the statistics office said on Tuesday.

The stronger-than expected rebound was mainly driven by higher household spending and soaring exports, the office said.

“This enabled the German economy to make up for a large part of the massive decline in gross domestic product caused by the coronavirus pandemic in the second quarter of 2020,” it added.

The reading marked an upward revision to an earlier flash estimate of 8.2% growth, and followed a 9.8% plunge in the second quarter.

The outlook is clouded by a second wave of coronavirus infections and a partial lockdown to slow the spread of the disease. Restaurants, bars, hotels and entertainment venues have been closed since Nov. 2, but shops and schools remain open.

Chancellor Angela Merkel and regional state premiers are planning to extend the “lockdown-light” on Wednesday until Dec. 20, according to a draft prepared for their meeting.

A contraction in the service sector is expected to weigh heavily on gross domestic product in the fourth quarter, while lockdown measures in other countries are likely to hit export-oriented manufacturers as well.

DIW economist Claus Michelsen said a decline in economic output was therefore on the cards, with initial estimates indicating a GDP drop of around 1% in the final quarter.

“Germany and many important trading partners are likely to slide back into recession,” Michelsen said.

(Reporting by Michael Nienaber and Rene Wagner; Editing by Riham Alkousaa and EKevin Liffey)

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