Covid: China economy rebounds after pandemic measures lifted
China’s economy grew faster than expected in the first three months of the year, as the country emerged from its tough Covid restrictions.
Compared to the same period last year, gross domestic product (GDP) grew by 4.5%, official figures show.
The key measure of economic activity was driven up by a boost in household spending and rising factory activity.
Also on Tuesday, separate data for March showed that retail sales, the main indicator of household consumption, jumped by 10.6%, compared to a year earlier.
At the same time, output from the country’s factories rose by 3.9%, although that slightly missed forecasts.
Meanwhile, there was also evidence of a strong rebound for the country’s airline industry.
China Civil Aviation Administration data showed that more than 45 million air passenger trips were taken last month, an almost threefold increase on the same time last year.
The country resumed processing visa applications in March after announcing a major easing of restrictions.
Investors had been eagerly waiting for the figures to get clues on the strength of China’s recovery after the government lifted coronavirus measures.
Beijing has also eased a three-year-long crackdown on big technology companies and property developers.
However, one analyst told the BBC that, while the latest figures are strong, that pace of growth is unlikely to continue.
“What’s more likely to happen in the coming months is that people might get over the initial high after the reopening,” Dan Wang, chief economist at Hang Seng Bank (China) said.
“Manufacturing demand might decline, which cannot sustain a boom in exports because the global economy is slowing down rather than speeding up,” she added.
Authorities, including the People’s Bank of China, have promised to increase support for the pledged to step up support for China’s economy to help curb unemployment but are limited in what measures they can take.
Last year, China’s GDP growth slumped to one of the lowest levels in nearly half a century due to coronavirus measures.
GDP is one of the most important tools for looking at how well, or badly, an economy is doing. It helps businesses judge when to expand and hire more people, and lets governments work out how much to tax and spend.
Strong job gains in US add to economic puzzle – BBC
Job creation in the US remained robust last month, despite rising prices and a sharp spike in borrowing costs weighing on the economy.
Employers added 339,000 jobs, but the unemployment rate rose to 3.7%, from April’s unusually low 3.4%.
Analysts have expected hiring to slow as the US central bank raises interest rates to try to rein in rising prices.
But payrolls have remained resilient, raising hopes the economy will avoid a painful recession, while also stirring debate about whether the Federal Reserve will have to take more aggressive action to bring inflation under control.
Inflation, the rate at which prices rise, was 4.9% in the US in April.
While that was the lowest in roughly two years, it remained more than double the 2% rate that the bank considers healthy.
Expectations of what Friday’s report might mean for interest rates in the months ahead were divided.
“This is the strangest employment report for some time,” said Ian Shepherdson of Pantheon Macroeconomics, pointing to the disconnect between the job gains and the rise in unemployment.
Some analysts said the widespread job gains in May, as hospitals, restaurants, bars and construction firms added workers, was a sign that the Fed will have to raise interest rates more.
The Labor Department also said job gains in April had been greater than previously estimated.
Others said the report included signs that should convince the bank to hold off, pointing to moderating wage gains. At 3.7%, the jobless rate was also the highest in seven months.
US President Joe Biden, who has been dogged by public pessimism over the economy, celebrated the figures, saying it was a “good day for the American economy and American workers”.
But others said the gains may not be sustainable.
Seema Shah, chief global strategist at Principal Asset Management, said the “blow out” job gains in May indicated that the “Fed’s job is not yet done”.
“The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency?” she said.
“Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July. But overall, this is not a labour market that is slowing – and if it’s not slowing, then inflation isn’t coming down to 2%.”
If the US central bank continues to raise interest rates, that would lead to higher borrowing costs for households and businesses seeking mortgages or other loans.
The expectation is that the economy will cool, easing pressures pushing up prices, as higher borrowing costs lead people to cut back on spending and businesses to delay expansions and other activities.
“By year-end, as the impact of Fed tightening feeds into the economy and corporates retrench, we expect a material weakening in job market conditions and an early-90s type economic recession,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
He added: “A delay to this process implies the risk of higher-for-longer rates, and a deeper downturn.”
Global fertility has collapsed, with profound economic consequences
In the roughly 250 years since the Industrial Revolution the world’s population, like its wealth, has exploded. Before the end of this century, however, the number of people on the planet could shrink for the first time since the Black Death. The root cause is not a surge in deaths, but a slump in births. Across much of the world the fertility rate, the average number of births per woman, is collapsing. Although the trend may be familiar, its extent and its consequences are not. Even as artificial intelligence (ai) leads to surging optimism in some quarters, the baby bust hangs over the future of the world economy.
In 2000 the world’s fertility rate was 2.7 births per woman, comfortably above the “replacement rate” of 2.1, at which a population is stable. Today it is 2.3 and falling. The largest 15 countries by GDP all have a fertility rate below the replacement rate. That includes America and much of the rich world, but also China and India, neither of which is rich but which together account for more than a third of the global population.
The result is that in much of the world the patter of tiny feet is being drowned out by the clatter of walking sticks. The prime examples of ageing countries are no longer just Japan and Italy but also include Brazil, Mexico and Thailand. By 2030 more than half the inhabitants of East and South-East Asia will be over 40. As the old die and are not fully replaced, populations are likely to shrink. Outside Africa, the world’s population is forecast to peak in the 2050s and end the century smaller than it is today. Even in Africa, the fertility rate is falling fast.
Whatever some environmentalists say, a shrinking population creates problems. The world is not close to full and the economic difficulties resulting from fewer young people are many. The obvious one is that it is getting harder to support the world’s pensioners. Retired folk draw on the output of the working-aged, either through the state, which levies taxes on workers to pay public pensions, or by cashing in savings to buy goods and services or because relatives provide care unpaid. But whereas the rich world currently has around three people between 20 and 64 years old for everyone over 65, by 2050 it will have less than two. The implications are higher taxes, later retirements, lower real returns for savers and, possibly, government budget crises.
Low ratios of workers to pensioners are only one problem stemming from collapsing fertility. As we explain this week, younger people have more of what psychologists call “fluid intelligence”, the ability to think creatively so as to solve problems in entirely new ways .
This youthful dynamism complements the accumulated knowledge of older workers. It also brings change. Patents filed by the youngest inventors are much more likely to cover breakthrough innovations. Older countries—and, it turns out, their young people—are less enterprising and less comfortable taking risks. Elderly electorates ossify politics, too. Because the old benefit less than the young when economies grow, they have proved less keen on pro-growth policies, especially housebuilding. Creative destruction is likely to be rarer in ageing societies, suppressing productivity growth in ways that compound into an enormous missed opportunity.
All things considered, it is tempting to cast low fertility rates as a crisis to be solved. Many of its underlying causes, though, are in themselves welcome. As people have become richer they have tended to have fewer children. Today they face different trade-offs between work and family, and these are mostly better ones. The populist conservatives who claim low fertility is a sign of society’s failure and call for a return to traditional family values are wrong. More choice is a good thing, and no one owes it to others to bring up children.
Liberals’ impulse to encourage more immigration is more noble. But it, too, is a misdiagnosis. Immigration in the rich world today is at a record high, helping individual countries tackle worker shortages. But the global nature of the fertility slump means that, by the middle of the century, the world is likely to face a dearth of young educated workers unless something changes.
What might that be? People often tell pollsters they want more children than they have. This gap between aspiration and reality could be in part because would-be parents—who, in effect, subsidise future childless pensioners—cannot afford to have more children, or because of other policy failures, such as housing shortages or inadequate fertility treatment. Yet even if these are fixed, economic development is still likely to lead to a fall in fertility below the replacement rate. Pro-family policies have a disappointing record. Singapore offers lavish grants, tax rebates and child-care subsidies—but has a fertility rate of 1.0.
Unleashing the potential of the world’s poor would ease the shortage of educated young workers without more births. Two-thirds of Chinese children live in the countryside and attend mostly dreadful schools; the same fraction of 25- to 34-year-olds in India have not completed upper secondary education. Africa’s pool of young people will continue to grow for decades. Boosting their skills is desirable in itself, and might also cast more young migrants as innovators in otherwise-stagnant economies. Yet encouraging development is hard—and the sooner places get rich, the sooner they get old.
Eventually, therefore, the world will have to make do with fewer youngsters—and perhaps with a shrinking population. With that in mind, recent advances in ai could not have come at a better time. An über-productive AI-infused economy might find it easy to support a greater number of retired people. Eventually ai may be able to generate ideas by itself, reducing the need for human intelligence. Combined with robotics, ai may also make caring for the elderly less labour-intensive. Such innovations will certainly be in high demand.
If technology does allow humanity to overcome the baby bust, it will fit the historical pattern. Unexpected productivity advances meant that demographic time-bombs, such as the mass starvation predicted by Thomas Malthus in the 18th century, failed to detonate. Fewer babies means less human genius. But that might be a problem human genius can fix. ■
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Canadian GDP growth beats StatCan forecast in Q1 2023 – CTV News
The Canadian economy grew faster than expected in the first three months of the year and likely expanded again in April, fuelling speculation that the Bank of Canada will raise interest rates again.
Statistics Canada reported Wednesday real gross domestic product grew at an annualized rate of 3.1 per cent in the first quarter of 2023.
That growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy expanded by 0.2 per cent in April after remaining flat in March.
The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.
“It is a little surprising the resilience, I would say, of the Canadian consumer … just given the amount of interest rate hikes that had been put in place over the course of the previous year,” said Dawn Desjardins, chief economist at Deloitte.
The Bank of Canada’s key interest rate sits at 4.5 per cent — the highest it’s been since 2007.
The ongoing resilience in the economy is raising the odds of another rate hike, economists say, as the Bank of Canada heads toward its upcoming interest rate decision next week.
“The run of sturdy data undoubtedly raises the odds that the Bank of Canada needs to go back to the well of rate hikes, and even puts some chance on a move as early as next week’s policy decision,” BMO chief economist Douglas Porter said in a client note.
But Porter, along with other commercial bank economists, say that the central bank may delay the decision to raise rates again until the summer.
“However, given the uncertain backdrop and the possibility that inflation took a big step down in May, the Bank of Canada could opt to remain patient for a bit longer and signal that it’s open to hiking in July if the strength persists.”
The federal agency says growth in exports and household spending helped spur growth in the first quarter.
Meanwhile, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.
The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.
However, Statistics Canada noted that disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.
The combination of higher spending and lower income has pushed down the household saving rate.
Economists have been struggling to get a read on the economy as data has proven to be volatile. Desjardins says converging forces, from the COVID-19 pandemic to changing demographics to population growth, are to blame.
“There are a lot of things that are changing within the economy. And it does make it very challenging to really zero in on what is that one factor that is driving this growth, or is going to be the one that’s going to drive us into a much slower growth trajectory,” Desjardins said.
Forecasters were previously expecting the Bank of Canada’s aggressive rate-hiking cycle, which began in March 2022, to push the economy into a recession as early as the end of 2022.
Those predictions have turned out to be too pessimistic, but economists like Desjardins are still counting on a slowdown this year.
“I do think that households are going to start to feel the squeeze,” she said.
How bad the squeeze will be will depend on how hard the labour market is hit, Desjardins said. So far, the jobs market has kept its steam as the unemployment rate hovers at five per cent, just above the all-time record-low of 4.9 per cent.
The central bank paused its rate-hiking cycle earlier this year to account for the lag that typically exists between changes to interest rates and the effects on the economy.
But the central bank’s governor, Tiff Macklem, has signalled that the bank is still trying to figure out if interest rates are high enough to quash inflation.
The headline inflation rate ticked up slightly to 4.4 per cent in April, remaining well above the central bank’s two per cent target. It’s still expected to decline further this year, but economists and the Bank of Canada worry the journey back to two per cent inflation may take longer than they would hope for.
This report by The Canadian Press was first published May 31, 2023
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