(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 – 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.
