People walk in a shopping mall in Beijing, on June 15.WANG ZHAO/AFP/Getty Images
China’s economy stumbled in May with industrial output and retail sales growth missing forecasts, adding to expectations that Beijing will need to do more to shore up a shaky post-pandemic recovery.
The economic rebound seen earlier this year has lost momentum in the second quarter, prompting China’s central bank to cut some key interest rates this week for the first time in nearly a year, with expectations of more to come.
“The post-Covid recovery appears to have run its course, an economic double dip is nearly confirmed, and we now see significant downside risks to our below-consensus GDP growth forecasts of 5.5 per cent and 4.2 per cent for 2023 and 2024, respectively,” analysts at Nomura said in a research note after the latest disappointing data.
Industrial output grew 3.5 per cent in May from a year earlier, the National Bureau of Statistics (NBS) said on Thursday, slowing from the 5.6 per cent expansion in April and slightly below a 3.6 per cent increase expected by analysts in a Reuters poll, as manufacturers struggle with weak demand at home and abroad.
Retail sales – a key gauge of consumer confidence – rose 12.7 per cent, missing forecasts of 13.6 per cent growth and slowing from April’s 18.4 per cent.
“All the data points so far sent consistent signals that the economic momentum is weakening,” said Zhiwei Zhang, president of Pinpoint Asset Management.
Data ranging from factory surveys and trade to loan growth and home sales have shown signs of weakness in the world’s second-biggest economy. Crude steel output extended both year-on-year and month-on-month falls in May while daily coal output fell from April too, NBS figures showed.
The soft run of data has defied analysts’ expectations for a sharper pickup, given comparisons with last year’s very weak performance, when many cities were under strict COVID lockdowns.
The figures also reinforce the case for more stimulus as China faces deflationary risks, mounting local government debts, record youth unemployment and weakening global demand.
“Insufficient domestic demand and sluggish external demand could interrupt the momentum in the ongoing months, leaving China with a more gradual U-shape recovery trajectory on its month-on-month growth path,” said Bruce Pang, chief economist at Jones Lang LaSalle.
Introducing stimulus with large-scale policy easing would be the first step, Pang said. “But it could need two to three years to shore up a slowing economic recovery.”
Following the downbeat data, JP Morgan trimmed its forecast for China’s 2023 full-year gross domestic product (GDP) growth to 5.5 per cent from 5.9 per cent. The government has set a modest GDP growth target of around 5 per cent for this year, after badly missing the 2022 goal.
China’s central bank on Thursday cut the interest rate on its one-year medium-term lending facility, the first such easing in 10 months, paving the way for cuts in the benchmark loan prime rates (LPR) next week. The move was expected after it trimmed some short-term rates earlier in the week.
The yuan hit a fresh six-month low after the rate cut and China’s stock markets rose, with the benchmark CSI 300 gaining 1.6 per cent and Hong Kong’s Hang Seng Index climbing 2.2 per cent.
Markets are also betting on more stimulus, including measures targeting the floundering property sector, once a key driver of growth.
While policy-makers in Beijing have been cautious about deploying aggressive stimulus that could heighten capital flight risks, analysts say more easing will be needed.
The country’s biggest banks recently cut their deposit rates to ease pressure on profit margins and encourage savers to spend more.
Julian Evans-Pritchard, head of China at Capital Economics, said while the central bank’s easing won’t make much difference on its own, it reveals “growing concerns among officials about the health of China’s recovery.”
He added the second quarter is shaping up to be weaker than he had anticipated and further policy support is probably needed to prevent the economy from entering a renewed downturn.
NBS spokesperson Fu Linghui told a press briefing that second quarter growth was expected to pick up due to last year’s low base effect.
However, he warned the recovery faces challenges including “a complicated and grim international environment, sluggish global economic recovery” and well as “insufficient domestic demand.”
Yi Gang, PBOC governor, pledged last week that China will make counter-cyclical policy adjustments to shore up the economy.
Property investment in May fell at the fastest pace since at least 2001, down 21.5 per cent year-on-year, while new home price growth slowed.
The property sector, historically a major driver of China’s economic activity, is expected to grapple with “persistent weakness” for years, Goldman Sachs analysts said this week.
Private fixed-asset investment shrank 0.1 per cent in the first five months, a sharp contrast to the 8.4 per cent growth in investment by state entities, suggesting weak business confidence.
Labour market pains continued with youth unemployment jumping to a record 20.8 per cent. The nationwide survey-based jobless rate stayed at 5.2 per cent in May.
Strikes at Chinese factories have surged to a seven-year high and are expected to become more frequent as weak global demand forces exporters to cut workers’ pay and shut down plants, one rights group and economists said, further hurting consumer and business confidence.
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
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.
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