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Chinese policy-makers vow commitment to growth as pressure on economy mounts – The Globe and Mail

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Renewed COVID-19 lockdowns are weighing heavily on China’s business activity, consumer confidence and financial markets.ALY SONG/Reuters

Chinese policy-makers pledged on Wednesday that growth was still a priority and they would press on with reforms, helping further boost stock markets buoyed by hopes that Beijing will ease off on its strict COVID-19 measures.

The policy-makers’ comments came in an apparent bid to soothe fears that ideology could take precedence as Xi Jinping began a new leadership term and strict COVID curbs exact a growing toll on the world’s second-largest economy.

Even though case numbers are rising and disruptive lockdowns continue with no clear exit strategy in sight, investors latched on to hope that China may ease its strict COVID policy in the coming months.

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“We believe China could soon fine-tune its COVID restrictions, with a more targeted approach, less restrictive quarantine guidance and the more balanced assessment of the virus,” Morgan Stanley analysts said in a note.

China and Hong Kong stocks ended higher for a second session on Wednesday, and U.S.-listed Chinese stocks rose in premarket trading.

On the ground, however, there were no signs of an ease up. Renewed COVID lockdowns are weighing heavily on China’s business activity and consumer confidence.

In the latest fallout, electric vehicle maker NIO said it suspended production in the eastern city of Hefei amid rising COVID-19 cases and Yum China, operator of the KFC and Pizza Hut chains, said it was temporarily closing or reducing services at over 1,000 of its restaurants in China.

Luxury goods companies Estee Lauder Cos Inc and Canada Goose Holdings Inc also cut their full-year forecasts, blaming a hit from persistent COVID-19-related lockdowns and store closures in China.

Xi secured a third term as general secretary at the ruling Communist Party’s twice-a-decade congress last month, when he urged the party to brace for hardship and strengthen national security, and renewed his support for the zero-COVID policy, despite the fragile economy.

In pre-recorded interviews for the Global Financial Leaders’ Investment Summit in Hong Kong, senior officials from China’s central bank, securities and banking regulators assured their audience via a video link that China would keep its currency and property markets stable, and remained committed to a pro-growth economic strategy.

“International investors should read more carefully about the work report that President Xi delivered” at the congress, said Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC).

“There, he re-emphasized the centrality of economic growth in the entire work of the Party and the country, and that’s very significant,” showing China is fully focused on growth, he said.

Fang also criticized international media coverage, saying that a lot of reports “really don’t understand China very well” and had a short-term focus.

As foreign funds head for the exits, Chinese investors have been snapping up cheapened shares of mainland firms, betting that outside views of China have been excessively negative.

Yi Gang, governor of the People’s Bank of China (PBOC), said China will continue to deregulate its markets.

“Reform and open-door policy will continue,” Yi said.

Apparently seeking to ease worries over the impact of COVID lockdowns and a property market crisis, Yi said “the Chinese economy has remained broadly on track despite some challenges and downward pressure.”

“I expect China’s potential growth rate to remain in a reasonable range,” Yi said, citing the country’s “super large” market, a rising middle-class, technological innovation and a high-quality infrastructure network.

Separately, in a book entitled “A Supplementary Reading of the 20th Communist Party Congress Report” and cited in local media on Wednesday, Yi said China is in a position to maintain “normal” monetary policy and “positive” interest rates.

Global interest rate hikes have pressured yuan assets, and it is impossible for China to keep cutting interest rates in the long run, Wang Jun, director at China Chief Economist Forum, told Reuters.

While other countries have been tightening policy to battle rising prices, China has implemented an accommodative monetary policy to shore up sputtering growth, raising concerns about capital flight. The yuan has weakened roughly 13 per cent against the dollar this year.

But Yi said the yuan has appreciated against other major currencies, “maintaining its purchasing power and keeping its value stable.”

Noting China’s property crisis, and the sector’s links to other many other industries, Yi said, “We hope‌‌ the housing market‌‌ can achieve a soft landing‌‌.”

With China’s zero-COVID policy expected to remain in place through at least the winter, or longer, its near-term growth outlook is bleak.

Fears of renewed disruptions to global supply chains are resurfacing.

On Wednesday, a Chinese industrial park that hosts an iPhone factory belonging to Foxconn announced a fresh lockdown.

“We expect Beijing to maintain its zero-Covid strategy at least until March 2023,” according to Nomura.

After surprisingly high gross domestic product growth of 3.9 per cent in the third quarter, Nomura expects growth to drop again, with zero or even negative sequential growth from the previous quarter.

“We maintain our GDP growth forecast of 2.8 per cent year-on-year for the fourth quarter with a corresponding sequential growth forecast at 0.0 per cent.”

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Domestic demand drags Czech economy in Q3 as recession looms

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PRAGUE — The Czech economy shrank less in the third quarter than initially suggested, with domestic demand the main weak spot, while other data pointed to another decline in the fourth quarter, signaling the economy has likely entered a recession.

Czech gross domestic product (GDP) dropped 0.2% in July-September from the second quarter, the first quarterly decline since early 2021. On an annual basis, GDP rose 1.7%, the Statistics Office said on Friday.

An initial estimate in early November suggested a quarterly decline of 0.4% and showed 1.6% growth year-on-year.

“On the demand side, domestic demand was the main factor of the quarter-on-quarter GDP decrease (in the third quarter). Especially final consumption expenditure of households decreased. External demand had a positive influence,” said Vladimir Kermiet, director of the national accounts department at the statistics office.

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Some help may have come from the Czech car sector where producers like Volkwagen’s Skoda Auto have been working through backlogs caused by supply snags. The car industry accounts for one quarter of Czech industrial output.

Elsewhere in the region, Poland’s economy grew 0.9% in the third quarter, while Hungary reported a quarterly drop of 0.4%.

Surveys on Thursday pointed to more trouble ahead in the region as they showed manufacturing was in steep decline in Poland and the Czech Republic in November.

“One can talk of a high probability of a recession, because the fourth quarter can hardly be expected to show economic growth,” said Petr Dufek, chief economist at Banka Creditas. (Reporting by Robert Muller Editing by Mark Potter)

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Why Mark Zandi says the US economy will narrowly avoid a recession

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New York
CNN Business

Inflation is cooling. Consumers are still spending. And hiring is slowing — but not collapsing. That’s why Moody’s Analytics chief economist Mark Zandi is increasingly confident that the American economy will — narrowly — escape a recession.

“It’s going to be a struggle. It’s going to feel uncomfortable. But I think we are going to thread the needle,” Zandi told CNN Business in a phone interview earlier this week.

Zandi, whose forecasts are often cited by the White House, pointed to recent economic and market indicators that suggest the economy is not falling off a cliff despite widespread fears of a recession.

“The data over the last couple of months have been better than I would have thought. None of the financial market indicators suggest we have a recession dead ahead,” Zandi said.

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New numbers released on Thursday show inflation, as measured by the Federal Reserve’s favorite metric, eased in October. That is raising hopes the US central bank can slow the pace of its massive interest rate hikes as soon as this month.

The US economy also grew faster in the third quarter than initially estimated, bouncing back from two quarters of contraction.

And in a big positive for inflation-weary consumers, gas prices have plunged. The national average for regular gas is now below where it was when Russia invaded Ukraine and down sharply from the record high in June.

“My baseline is still no recession. That has not changed. But I do feel more confident than I did a few months ago,” said Zandi. “Inflation is moderating. Oil prices are stable to down. Employment growth is slowing. Layoffs are normalizing.”

Manufacturing stumbles, layoffs increase

Of course, there remains a great deal of uncertainty about what lies ahead and there are many reasons to be concerned about a potential downturn — including the most aggressive interest rate hikes from the Federal Reserve in decades.

Zandi said he wouldn’t argue with those who forecast a recession, conceding it’s going to be a “close” call.

A slew of major companies have announced layoffs of more than 1,000 jobs apiece in recent days, including AMC Networks, DoorDash and crypto exchange Kraken. That’s on top of mass layoffs that have wiped out tens of thousands of jobs in the tech sector, including major cuts at Amazon, Twitter and Facebook owner Meta.

Factories are also coming under significant pressure. A survey released Thursday by the Institute for Supply Management found that manufacturing activity contracted in November for the first time since May 2020.

“Overall, things are worsening,” one executive from a maker of electrical equipment, appliances and components said in the ISM survey. “Housing starts are down. We’re doing well against our competitors, but the industry overall is down. We’re sitting on cash (that is) tied up in inventory.”

‘Mild’ recession still a risk

Some business leaders are warning a downturn is likely still in the cards.

Bank of America CEO Brian Moynihan told CNN’s Poppy Harlow on Tuesday that the economy will probably slip into a recession next year — though he’s hopeful it will be a “mild” one.

In a report on Monday, S&P Global Ratings said just one of the nine leading economic indicators it tracks was in positive territory through October. S&P reiterated it expects the US economy to fall into recession next year, though it expects a “mild” recession in line with the 1969-1970 downturn. S&P forecasts peak-to-trough US GDP will decline by just 0.8%.

Zandi said he thinks all of these recession fears could end up working to the economy’s advantage by discouraging risky behavior, forcing businesses to keep cash on hand and persuading officials in Washington to make prudent decisions.

For instance, he pointed to President Joe Biden’s decision this week to call on Congress to act to prevent a crippling freight rail strike.

“I bet if we weren’t worried about a recession, the president wouldn’t have been so quick to go to Congress,” Zandi said. “Everyone is on high alert and very cautious. The fact we are so nervous about a recession makes it less likely something will go wrong.”

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Stats show Greater Sudbury’s economy grew at the end of 2022

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Greater Sudbury has released results for the second and third quarters of 2022 that show economic growth in the area.

City officials said in the second and third quarters of 2022, permits for major projects across all sectors were issued with a total construction value of $64 million.

New Mayor Paul Lefebvre said that’s good news, but there is more work to be done to grow the tax base and attract new business to the city.

The amount of available land here compared to southern Ontario is a strong selling point, Lefebvre said.

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“In the GTA, they are running out of land (so) they gotta go up,” he said.

“Whereas we have a lot of capacity, a lot of infrastructure that is already in place, so how do we maximize that infrastructure?” Lefebvre acknowledges that industrial parks such as on Fielding Road are in poor condition, but said development should be directed to “where the infrastructure exists.”

“The idea is not to create new infrastructure,” he said.

(It’s) how do we make it easier and a lot more welcoming for these businesses to set up? So those are big investments, but the return on the investment is also great. That’s the way I look at it.”

The Greater Sudbury Chamber of Commerce said businesses along Fielding Road are big economic drivers in the city and the area needs improvement.

“We want to make sure (new businesses know) that we are here for you and here is what we are going to do make sure that you continue to want to expand your business here,” said Anthony Davis, of the Greater Sudbury Chamber of Commerce.

“We know you are underserviced and that is of top of mind and that it is a top priority to try and make sure those businesses are happy.”

Lefebvre said the city started working on an employment land strategy a few months ago to focus on areas that are ready for development and what improvements can be made.

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