(Bloomberg) — China’s economy showed signs of recovery in August as Beijing rolled out stimulus measures to counter a slowdown, although a property market slump and Covid outbreaks continue to weigh on the outlook.
Industrial production, retail sales and fixed-asset investment all grew faster than economists expected last month. The urban jobless rate slid to 5.3%, while the youth unemployment rate fell from a record high.
The boost to retail sales was partly due to a lower base of comparison from a year earlier and a surge in car sales after Beijing gave buyers subsidies on electric vehicles. Industrial output was also supported by a big spike in electricity production during August’s heatwave, a rebound that’s unlikely to be sustained.
Despite signs of improvement, the recovery remains fragile as Covid outbreaks spread to more parts of the country and the government tightens curbs to contain infections in the run-up to the Communist Party’s twice-in-a-decade leadership congress next month. A property market slump also shows no sign of easing, with separate data on Friday showing home prices have now declined every month in the past year, with the contraction in August bigger than in July.
“While today’s data are better than expected, it’s unlikely to change the prevailing pessimism toward China, given the multiple headwinds underway including zero-Covid, property rout and the lack of decisive policy moves before the Party Congress,” said Larry Hu, chief China economist at Macquarie Group Inc.
Investors were unmoved by the data, with the yuan’s breaching of the key level of 7 to the dollar on Thursday weighing on sentiment. The CSI 300 Index of stocks fell 1.6% as of 1:43 p.m. in Shanghai, with the weekly loss of 3.2% in line for the worst performance in two months. The yuan weakened 0.2% to 7.0257 per dollar in the offshore market, while the yield on 10-year government bonds rose 2 basis points to 2.68%.
The NBS said the data showed “the economy withstood the impacts of multiple unexpected factors and sustained the momentum of recovery.” Even so, the economy faces a more complex and grim situation this year than in 2020, given the difficulty in controlling Covid outbreaks and a slowdown in the global economy, Fu Linghui, a spokesman NBS, told reporters in Beijing.
Helen Qiao, chief economist for Greater China at BofA Global Research, said the data suggest annual growth may still be able to reach 3.5% this year, although domestic demand remains weak.
“We need to see more policy action to help,” she said in an interview on Bloomberg TV. “In our view, the only policy that will help is to relax the Covid controls.”
The government and central bank took several steps recently to support the housing and construction industries, seeking to bolster an economy that’s slowed sharply this year. Government spending on infrastructure has also been ramped up and the central bank has cut interest rates to spur growth.
The People’s Bank of China refrained from another interest rate cut this week as the currency comes under pressure. The offshore yuan weakened past the key 7 per dollar level for the first time in more than two years on Thursday.
What Bloomberg Economics Says…
The upside surprise in China’s August headline activity data buried bad news. The month-on-month changes in industrial output and retail sales pointed to weaker momentum in the recovery. This suggests even stronger stimulus failed to counter impact from power shortages, Covid lockdowns and the property slump.
We expect policy makers to strengthen support — increasing leeway for local governments to issue more special bonds and cutting interest rates further by year end.
Chang Shu and Eric Zhu
For the full report, click here.
Economists have been downgrading their growth forecasts steadily this year to 3.5%, which would be the second-weakest annual reading in more than four decades and is well below the official target of “around 5.5%” announced in March.
“Looking ahead, we believe the policy support to the economy will continue,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. He expects the loan prime rates to be lowered further “as the mortgage loans remain soft.”
The auto industry was a key driver for August’s pickup in both industrial output and retail sales after the government halved the tax on some new passenger cars from June 1, fueling demand. The production of new energy vehicles soared 117% on year last month.
Power generation was another main contributor with coal-based production of electricity jumping 14.8% last month from a year earlier to address shortages in mainly the country’s southwest that was hit by a heatwave and a drought.
Output of construction-related materials continued to fall, reflecting protracted weakness in the real-estate sector. The production of cement fell 13.1% year-on-year in August, deepening from a drop of 7% in the previous month. However aluminum output hit a record last month despite power shortages, up almost 10% after exports rose in recent months to to make up for production losses caused by the spike in energy costs in the wake of Russia’s invasion of Ukraine.
Beijing’s Covid Zero strategy remains a major threat to growth, with key cities like Chengdu only recently emerging from lockdowns. Tourism has been decimated and travel during the upcoming National Day holidays in October is being discouraged.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
