China’s economy is slowing to the lows seen way back in 1990 — a price President Xi Jinping seems willing to pay to reduce its dependence on the property sector.
Beijing’s squeeze on the real estate sector will linger into next year and beyond, a development many hadn’t seen coming that has now prompted banks like Goldman Sachs Group Inc., Nomura Holdings Inc. and Barclays Plc to cut their growth forecasts in 2022 to below 5%.
Bar last year’s pandemic year, that would be the weakest in more than three decades.
It’s a big stepdown from pre-pandemic rates closer to 7%. Given China’s status as the world’s second-biggest economy, it means softer demand for commodities pumped out by countries like Australia and Indonesia and slower spending by Chinese consumers who are crucial to multinationals from Apple Inc. to Volkswagen AG.
Economists are coming to realize that the Communist Party’s Politburo, the top decision-making body, was serious when it vowed this year not to use the property sector to stimulate the economy as they did following past downturns.
Officials say excess supply of housing is a threat to economic stability, and want investment to go to prioritized sectors like hi-tech manufacturing rather than more apartments.
“President Xi thinks the property sector is too big,” said Chen Long, an economist at Beijing-based consultancy Plenum. “Xi is personally involved in real estate policies, so ministries don’t dare to ease policies without his approval.”
Rob Subbaraman, Nomura’s chief economist, estimates China’s slowdown to 4.3% next year from 7.1% this year “can directly reduce world GDP growth by around 0.5 percentage points.” Beijing is willing to “sacrifice some short-term growth for greater long-term stability,” he said.
Covid Outbreaks
Weak consumer spending is another drag on the economy, with China’s zero tolerance to sporadic coronavirus outbreaks and stringent lockdown measures spooking consumers and forcing business to shut.
“In the case of longer-lasting zero Covid policy in China or a much deeper property downturn, GDP growth in 2022 could drop to 4%,” Tao Wang, chief China economist at UBS AG, said in a note.
China’s property sector is the biggest question mark over the economy because of its huge scale — more than 900 million square meters of apartments are constructed each year, official data show.
That investment, plus the output of related sectors like steel and cement production, accounts for anything between 20% and 25% of China’s GDP, economists estimate. Any slowdown — or an outright decline — in real estate development would leave a gap in the economy that expansion in no other sector could easily fill.
“China’s property slowdown is a major headwind to the global economy because it is likely to be the biggest headwind to the Chinese economy next year,” said Larry Hu, chief China economist at Macquarie Group Ltd.
China’s strict ‘zero COVID’ policy has dragged down consumer spending [FILE: Roman Pilipeyepa/EPA]
Real estate construction powered China’s V-shaped economic recovery from the pandemic, but the sector moved into contraction this summer after Beijing orchestrated a slowdown in mortgage lending that brought property developers such as China Evergrande Group close to bankruptcy.
The most spectacular decline has been in newly started housing projects, the steel-intensive part of real estate development, which fell more than 33% year-on-year in October, the biggest decline on record.
Property developers get most of their financing by selling homes to households before they are built. A pullback in mortgage lending, and a growing pessimism about the property market among households are causing sales to fall.
While the People’s Bank of China announced a slight uptick in mortgage lending in October, “the government is not rushing to stimulus even though starts have been collapsing,” said Rosealea Yao of Gavekal Dragonomics.
Beijing’s recent announcement of trials of a property tax to discourage the purchase of housing as an investment will damage sales sentiment further, she added.
As a result, multiple economists predict a 10% decline in new housing starts next year. But because Beijing is concerned about risks to social stability if developers are unable to complete pre-sold projects, officials will try to ensure existing projects are finished.
That means overall investment in real estate could grow next year even if sales and housing starts decline.
China’s housing sales and construction are expected to slow in 2022 [Qilai Shen/Bloomberg]
Morgan Stanley sees 2% growth in property investment next year, which would be down sharply from a pre-pandemic rate of 8%. Others, like UBS, are more pessimistic, predicting a 5% decline.
The slowdown could last for years: Goldman Sachs expects the housing sector to reduce GDP growth by 1 percentage-point annually each year through to 2025.
While Beijing has a lot of control over the housing market, it’s still possible the slowdown has self-reinforcing dynamics that could be hard for authorities to control, leading to an even sharper downturn than the more pessimistic forecasts.
For example, Chinese households tend to avoid property purchases when prices are falling, which can lead to lower sales and more price declines.
If Beijing is serious about resolving imbalances in the property market, it would require a “multi-year slowdown in construction activity, which will certainly slow the economy given the property sector’s weight,” said Logan Wright of Rhodium Group. “A lot still depends on what Beijing does in the next couple of months.”
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.
