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China’s Economy Stumbles in the Fog of Covid War – The New York Times



Even if the country avoids new lockdowns of big cities, question marks over the pandemic and policy direction are dogging efforts to revive growth.

China’s economic engine has shuddered in recent months, hurt by lockdowns imposed to curb the spread of Covid. Housing sales sagged. Many shops and restaurants in some cities shuttered, some maybe for good. Youth unemployment climbed.

The slowdown has kindled doubts about the viability of China’s stringent strategy of eliminating virtually all Covid infections — whether the cure is becoming worse than the social and economic costs of restrictions. But on a recent visit to Wuhan, the city where the pandemic first took hold, China’s leader, Xi Jinping, said that extinguishing Covid remained paramount.

“It would be preferable to have a little temporary impact on economic development, rather than let the physical safety and health of the public suffer,” Mr. Xi said, state media reported. He cited the need to protect older adults as well as children from infection, and warned officials against becoming weary of the grinding two-and-a-half-year war against Covid. “Persistence,” he said, “is victory.”

That elusive victory over Covid has been made harder by the fast-moving Omicron variant — and its sub-variant, BA.5, the first domestic cases of which emerged last week in China — that is slipping through the country’s many defenses.

A month after Shanghai lifted its citywide lockdown, fresh Covid cases have emerged there in recent days, prompting officials to order many of the city’s 25 million residents to undergo testing. Anhui Province in eastern China enforced a virtual lockdown on two counties, and neighboring Jiangsu Province, a manufacturing heartland, is scrambling to contain new infections. Xi’an, a city of 13 million, has closed schools and many businesses after a flare-up.

Jade Gao/Agence France-Presse — Getty Images

Like swatting flies with a shovel, China’s Covid strategy can be effective, but also costly and contentious. It entails locking down apartment blocks, neighborhoods or even whole cities for days or weeks to stamp out even handfuls of cases. As a result, Mr. Xi’s insistence on Covid zero, or “dynamic zero” as Beijing calls it, has cast an unsettling shadow over the country’s economic expectations.

The Chinese government is scheduled to release the main economic data for this year’s second quarter on Friday. According to a survey by Bloomberg, economists expect that the Chinese government will report that gross domestic product grew by about 1 percent in the second quarter, compared with the same period a year earlier. That’s a big comedown from the 4.8 percent expansion in the first quarter, and is likely to put the government’s 5.5 percent growth goal for all of this year out of reach.

“Uncertainty is the main factor hurting our national economic development,” Yang Weimin, an economist who advises the Chinese government, said in a speech in late June to property developers, citing questions around Covid and pandemic prevention measures. He also pointed to investor wariness after crackdowns on companies accused of abusing their market dominance, flouting regulators or offending official moral codes.

“Uncertainty is the great enemy of action,” Mr. Yang said.

Mr. Xi wants officials to extinguish Covid outbreaks while also shoring up the economy. In Wuhan, he visited a laser equipment plant, hailing the potential of new technologies, and also visited a neighborhood that has been promoted as a model of effective Covid controls.

In practice, officials struggle with the diverging demands of Covid controls and economic recovery. The resulting strains are bearing down on China months before a Communist Party congress when Mr. Xi is almost certain to win another five-year term as the party’s leader, consolidating his status as its most powerful leader since Deng Xiaoping and Mao Zedong.

Kevin Frayer/Getty Images

Beijing has tried to boost confidence among entrepreneurs and consumers so they spend, invest and travel. But local officials, faced with the threat of dismissal for lapses in pandemic controls, often impose additional checks and restrictions on travelers and transport, adding to the disruptions and uncertainty.

“Often, the heads of different departments and companies attend one meeting in the morning about enhancing dynamic zero, and then in the afternoon a meeting about economic growth,” said Wu Qiang, an independent political commentator in Beijing.

“The tensions are within Xi’s own model for governing the country,” he said. “The tensions really arise from him.”

For the past two years, many Chinese people have accepted the Covid restrictions as irksome but necessary. But employees and employers appear increasingly impatient over lockdowns, checks and uncertainties, especially when they have loans, rent and wages to pay.

“The local government said for sure that they would get to zero in half a month, but I reckon half a month won’t be enough,” Wang Yongguan, who makes a living grouting walls, said in a telephone interview from Sixian County in Anhui Province, which went into lockdown. He also worried about the accompanying slump in home sales. “This year won’t be any good. It wasn’t to begin with.”

Policymakers trying to bolster investor confidence also fear they will be accused of undermining Mr. Xi’s policies to clean up companies accused of malfeasance and reckless investment, said Christopher K. Johnson, the president of the China Strategies Group, citing conversations with officials in Beijing.

Wang Zhao/Agence France-Presse — Getty Images

“Does the boss really want to relent on some of these crackdowns, or is it temporary?” Mr. Johnson said, referring to Mr. Xi. “There’s a lot of uncertainty.”

China’s stop-start Covid restrictions may continue into next year at least, in part because the government has focused on restrictions and testing over vaccinations. Older adults have a relatively low vaccination rate. The Chinese leadership has so far refused to approve more effective, foreign-developed vaccines — a decision driven by political pride rather than medical considerations, many experts say.

Yet Chinese leaders also worry that a deep slowdown could cause social discontent, an anxiety magnified by the impending party congress. Officials are under particular pressure to contain unemployment, which among urban residents age 16 to 24 rose to 18.4 percent in May, according to China’s National Bureau of Statistics. More than 10 million college graduates, a record number, are joining the job search this year. Others will take refuge in graduate school.

Even in Beijing, which has avoided a citywide shutdown by imposing only limited restrictions, business can be tough. Wang Jing said his restaurant in an alleyway usually crowded with tourists had lost more than 90 percent of its income in May, when Beijing banned dining in restaurants. The limits eased in early June, but only about a third of business has come back.

“This year is for sure the toughest we’ve had,” he said. “All my waiters have been with me for more than 10 years. They have young and old to take care of, and are waiting for me to issue wages. How could I ever fire them?”

Alex Plavevski/EPA, via Shutterstock

China has been edging toward some policy compromises. Officials halved the days of quarantine imposed on international travelers and close contacts to try to reduce some of the disruption. Mr. Xi and the premier, Li Keqiang, have also obliquely hinted that annual growth might be lower than the target of 5.5 percent that the government set earlier this year. Some former officials and policy advisers have openly said that businesses need more clarity to sustain an economic recovery.

“Our hearts can’t be riding on waves, bobbing up and down. That’s bad for economic growth and social development,” Hu Deping, a former vice chairman of All-China General Chamber of Industry and Commerce, said in a speech to Chinese private business owners in June. “Entrepreneurs will gain confidence only when there are no policy contradictions.”

Even if China is able to contain Covid without putting major cities under lockdowns, the accumulated uncertainty is prompting some companies to rethink their plans.

For Citrosuco, a Brazilian juice maker, business had been going well until Shanghai locked down in April. Its containers of frozen orange juice sat at the city’s port, held up by customs inspectors checking goods for the presence of the virus, said Joshua Lim, a general manager for the company in the city.

Clearing customs and getting the juice shipments to warehouses, which usually takes three to four days, took two weeks, he said. Citrosuco bosses in Brazil began reassessing China’s prospects, he said.

“They are asking questions like, how can we better protect our business?” he said. “If we invest now, what will the payback look like and what other risks will we be blindsided by?”

Alex Plavevski/EPA, via Shutterstock

Joy Dong, Zixu Wang, Li You, Claire Fu and Liu Yi contributed research and reporting.

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In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later – The New York Times



For Theresa Clarke, a retiree in New Canaan, Conn., the rising cost of living means not buying Goldfish crackers for her disabled daughter because a carton costs $11.99 at her local Stop & Shop. It means showering at the YMCA to save on her hot water bill. And it means watching her bank account dwindle to $50 because, as someone on a fixed income who never made much money to start with, there aren’t many other places she can trim her spending as prices rise.

“There is nothing to cut back on,” she said.

Jordan Trevino, 28, who recently took a better paying job in advertising in Los Angeles with a $100,000 salary, is economizing in little ways — ordering a cheaper entree when out to dinner, for example. But he is still planning a wedding next year and a honeymoon in Italy.

And David Schoenfeld, who made about $250,000 in retirement income and consulting fees last year and has about $5 million in savings, hasn’t pared back his spending. He has just returned from a vacation in Greece, with his daughter and two of his grandchildren.

“People in our group are not seeing this as a period of sacrifice,” said Mr. Schoenfeld, who lives in Sharon, Mass., and is a member of a group called Responsible Wealth, a network of rich people focused on inequality that pushes for higher taxes, among other stances. “We notice it’s expensive, but it’s kind of like: I don’t really care.”

Higher-income households built up savings and wealth during the early stages of the pandemic as they stayed at home and their stocks, houses and other assets rose in value. Between those stockpiles and solid wage growth, many have been able to keep spending even as costs climb. But data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation.

That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signs that poorer families are cutting back. If richer families don’t pull back as much — if they keep going on vacations, dining out and buying new cars and second homes — many prices could keep rising. The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown.

In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow.

“That’s the perfect storm, if unemployment increases,” said Mark Brown, chief executive of West Houston Assistance Ministries, which provides food, rental assistance and other forms of aid to people in need. “So many folks are so very close to the edge.”

America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.

But while lower-income families spend more of each dollar they earn, the rich and middle classes have so much more money that they account for a much bigger share of spending in the overall economy: The top two-fifths of the income distribution account for about 60 percent of spending in the economy, the bottom two-fifths about 22 percent. That means the rich can continue to fuel the economy even as the poor pull back, a potential difficulty for policymakers.

The Federal Reserve has been lifting interest rates rapidly since March to try to slow consumer spending and raise the cost of borrowing for companies, which will in turn lead to fewer business expansions, less hiring and slower wage growth. The goal is to slow the economy enough to lower inflation but not so much that it causes a painful recession.

Officials at West Houston Assistance Ministries said its food bank served 200 households on Friday.Meridith Kohut for The New York Times

But job growth accelerated unexpectedly in July, with wages climbing rapidly. Consumer spending, adjusted for inflation, has cooled, but Americans continue to open their wallets for vacations, restaurant meals and other services. If solid demand and tight labor market conditions continue, they could help to keep inflation rapid and make it more difficult for the Fed to cool the economy without continuing its string of quick rate increases. That could make widespread layoffs more likely.

“The one, singular worry is the jobs market — if demand is constrained to the point that companies have to start laying off workers, that’s what hits Main Street,” said Nela Richardson, chief economist at the job market data provider ADP. “That’s what hits low-income workers.”

Lower-income people are already hurting. Mr. Brown’s organization has seen more requests for help in recent months, he said, as local families fall behind on their bills. The size of the typical request has gone up, too, from a few hundred dollars to a few thousand. And he has noticed financial pain creeping up the income spectrum.

Mr. Brown’s observations are backed up by government data: About 12 percent of households reported they were struggling to get enough to eat in early July, up from about 10 percent at the beginning of the year, according to the Census Bureau.

Families can’t easily cut back what they spend on rent, gas or electricity as those prices climb, said Brian Greene, chief executive of the Houston Food Bank, which provides food to Mr. Brown’s organization and other charities across the region. So they cut back on food.

“Food insecurity isn’t about food,” Mr. Greene said. “Food insecurity is about income.”

Many poorer families’ incomes held up relatively well early in the pandemic because government aid — expanded unemployment benefits, stimulus checks and other programs — helped offset lost wages when businesses shut down. Then, as the economy reopened, pay soared for restaurant workers, delivery drivers and other low-wage workers.

But pandemic aid programs have ended and wage growth is slowing in many sectors — average hourly earnings in leisure and hospitality, which rose rapidly last year, actually fell in July from a month earlier for rank-and-file workers. Prices have risen so fast that even unusually quick wage growth has failed to keep up.

Travelers at Kennedy International Airport in New York. If richer people keep going on vacations, dining out and buying new cars, many prices could keep rising.
Gus Powell for The New York Times

The gaping divide between the rich and the poor in this inflationary moment is clear in corporate earnings calls. At Boot Barn, a Western wear retailer, sales of men’s Western boots were down in the first quarter, but sales of higher-priced exotic skin boots picked up. At LVMH, which owns luxury brands like Louis Vuitton and Tiffany, American revenues have been growing strongly, while at Walmart, customers are pulling back as they struggle to afford basic necessities, particularly food, which has run up sharply in price.

“This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,” Walmart said in its July 25 guidance.

It’s not just apparel: Consumers across the economy are buying less milk and fewer eggs, as prices for those products rise significantly, according to an analysis of government figures by Michelle Meyer, chief U.S. economist for Mastercard. Yet they are also going out to eat at restaurants more often.

The fissures are clear in the car market. Demand for new cars, which generally sell to higher-income buyers, has remained strong and prices continue to soar amid supply shortages — putting upward pressure on inflation. But used-car demand is ebbing and prices have begun to depreciate again.

“We see bifurcation in many parts of the economy and the auto market,” Jonathan Smoke, chief economist at Cox Automotive, said in an interview. “The new vehicle buyer has shown much less price sensitivity.”

Housing is another realm where fates have diverged. Home costs have run up sharply since the pandemic and mortgages are now more expensive, making buying unaffordable for many families. Because would-be buyers can’t afford homes, they are renting, keeping apartments for lease in short supply and pushing rents ever higher. Those soaring rents hit lower-income households especially hard: Roughly six in 10 people in the bottom quarter of earners rent their homes.

By contrast, homeowners have both seen their houses rise in value and often enjoy a built-in inflation hedge, since many refinanced their mortgages and locked in low monthly payments when rates were low in 2020 and 2021.

“The haves are really comfortable right now,” said Nicole Bachaud, an economist from Zillow, also noting that “we’re going to see this gap getting wider between people who are homeowners and people who are probably never going to be homeowners.”

Jamie Kelter Davis for The New York Times

Ms. Clarke, the New Canaan retiree, recently got off the wait list for an affordable apartment for herself and her 24-year-old daughter, who has autism and cannot work. Their new unit has just one bedroom, but it is clean and has new appliances, and at about $1,350 a month, she can squeeze it into her budget.

The lease lasts only a year, however, and Ms. Clarke is worried about finding somewhere to live if it isn’t renewed. Even now, she is barely making ends meet: She lost her car keys recently and had to spend nearly $500 replacing them, wiping out nearly all her small rainy-day fund and leaving her one crisis away from financial disaster.

“When you don’t have money, you’re on a fixed income, you’re constantly thinking, ‘Well, maybe I shouldn’t have bought that,’” she said. “There’s no cushion. There really never was.”

More financially secure families also face headwinds, of course, which could eventually prompt them to slow down spending. The cash savings they built up during the pandemic won’t last forever, and rising prices could prompt many households to pull back their spending.

And swooning stock markets could prompt richer families, who tend to have more money invested, to spend less than they otherwise would. Some economists think that the people in this demographic have mostly kept spending recently — despite their falling economic confidence — because they are eager to take vacations that they had put off earlier in the pandemic.

“Where I’m budgeting, it’s to make room for travel,” said Mr. Trevino of Los Angeles. “I feel like I’ve missed out on that a little bit.”

Economists have speculated that richer consumers’ resilience could fade as autumn approaches and they take stock of their finances amid a slowing economy. But for now, the reality that America’s wealthier consumers have yet to sharply pull back in the face of rising prices may be setting up a tough road ahead for the nation’s poorer ones.

“We really, in a way, haven’t noticed the inflation very much,” Mr. Schoenfeld said. “This economy is very unfair.”

Jason Karaian contributed reporting.

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Posthaste: Sorry, but the economy isn't over COVID — and won't be for some time – Financial Post



CIBC economists see long stretch of higher rates and low growth ahead

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Good Morning!

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A lot of weird things have been happening in our economy lately. Roaring inflation that took everybody by surprise, a drum-tight labour market and now the prospect of sputtering growth, if not outright contraction.

The explanation for these unexpected and in some cases unprecedented conditions, argue CIBC economists, is that COVID continues to disrupt the functioning of the economy.

Canada, the U.S. and Europe have tried to move on from the pandemic, lifting vaccine mandates and restrictions on activity, thus resulting in an increase in consumer demand.

“But COVID isn’t fading away as a supply constraint, or as a health issue,” CIBC economists Avery Shenfeld and Andrew Grantham wrote in a recent note.

Variants that spread more rapidly have meant that more people have died of COVID in 2022 than the previous year, even though fewer cases were fatal, they said.

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And while demand has recovered, supply chains have not, partly because of the war in Ukraine, but also because of COVID.

The lockdowns this year in China are the most obvious example. Omicron restrictions here caused exports to fall even more than during the first 2020 lockdown.

In Canada it is showing up in employee illness. “Flights are cancelled when crew members call in sick, hospitals cut back services because staff members are ill and live entertainment shows are postponed for the same reason,” wrote the economists. Omicron has been associated in Canada with a significant increase in working hours lost to illness.

Long COVID has caused some to actually withdraw from the workforce. The numbers are small in Canada, they said, but the U.K. serves as an example of what could happen if we fail to control future waves of the virus.

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In Britain, where public health restrictions have been lighter, 0.6% of the population have been “severely affected” by Long COVID, according to a recent study.

COVID is also impacting capital spending, said the economists. An uncertain outlook due to potential waves of the virus in future may be contributing to businesses’ reluctance to spend, but COVID supply-chain issues have also made getting capital equipment more difficult as well.

“The result is less production capacity in sectors where equipment is on back order, or where COVID uncertainties have forestalled investment,” they said.

The unprecedented COVID recession and recovery is also why there is a mismatch between job availability and hiring in the economy today, argue the economists.

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During the pandemic some work was almost completely shut down and stayed dormant for a long period. Now that the economy has reopened, those employers are scrambling to rehire in great numbers, a situation we have not seen before, they said.

“A typical recession doesn’t see air travel drop by 90% and doesn’t see live theatres close outright. A typical recovery doesn’t see the sudden opening we’re experiencing in these same sectors,” they wrote.

Workers who held these jobs, like restaurant staff and baggage handlers, in 2020 had two years to move on, unlike a typical recession that lasts just two or three quarters.

CIBC believes this mismatch will eventually even out, but the impact of COVID on supply chains and missed work could remain.

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So what does the future hold?

While traders are already talking about rate cuts after the hiking cycle winds up either at the end of this year or early 2023, CIBC sees the Bank of Canada keeping rates at 3.25% through the whole of 2023.

It also sees GDP growth slowing to 0.9% in the fourth quarter of this year and gaining only 1.5% in 2023.

“Even if a recession is avoided, we’re in for a protracted period of sub-par growth,” said the economists.

The policy of dropping COVID mandates meant to improve the economy may actually be working to extend the economics costs of the virus, they said.

“While helping on the demand side, diminished public health restraints, particularly during surges in case counts, are cutting into the economy’s supply capabilities. Their absence is likely elevating the peak levels for COVID cases, and thereby increasing the costs of worker absenteeism, and perhaps, as we’ve seen in the UK, risking longer term labour market damage due to Long COVID,” they said.

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The economists said lockdowns should be behind us, but a push for the use of masks, global vaccination and improvements of indoor air quality would help reduce the economic impact of COVID.


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Check out the latest from Sea Doo maker BRP Inc. This electric surfboard called the Sea-Doo Rise in one of three products that Bombardier Recreational Products announced recently in its first foray into electric vehicles. The EV push also means a return to the award-winning two-wheeled motorcycles that BRP produced in the ’70s and ’80s. The Can-Am Origin and Can-Am Pulse motorcycles, along with the Sea-Doo Rise, will all be electric and will be available to purchase in mid-2024, said BRP. Photo by BRP

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  • Blockchain Futurist Conference begins in Toronto
  • Toronto Ontario Lieutenant Governor Elizabeth Dowdeswell delivers Speech from the Throne
  • Unifor’s 4th Constitutional Convention
  • Jonathan Wilkinson, minister of natural resources, will make an announcement to support electric vehicle charging infrastructure in Manitoba
  • Earnings: Hydro One, Bausch Health Companies, Nuvei, Kinaxis, Coinbase Global___________________________________________________



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Cryptocurrencies have been having a rough go of it lately, with Bitcoin shedding 47% of its value so far this year. The crypto bear market has become entrenched after a spate of company bankruptcies and the failure of major decentralized finance project Terra in May — and despite small rallies fails to meaningfully recover ground. Fans, however, might take heart from the map below that shows how common cryptocurrencies have become. According to Hellosafe, a comparison site for financial products, 99 out of 195 countries in the world now allow the use of cryptocurrencies, or 50.8% of them. Cryptos are legal in all the European Union countries and in 18 countries or 51.4% of the Americas continent. Only two countries in the world, however, have legalized Bitcoin as legal tender: El Salvador on Sept. 7, 2021 and the Central African Republic on April 27, 2022.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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Ontario's Plan to Build Supporting Stronger Province and Economy – Government of Ontario News



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Ontario’s Plan to Build Supporting Stronger Province and Economy  Government of Ontario News

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