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 – 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.
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