(Bloomberg) — China’s disappointing economic growth figures prompted several economists to downgrade their forecasts for the year, citing major weaknesses in the recovery and Beijing’s relatively muted stimulus response.
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JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. were among banks to cut their projections for economic growth this year to 5%, putting Beijing’s official gross domestic product target of around 5% at risk.
Official figures released Monday showed the economy lost momentum in the second quarter, with consumer spending growth weakening notably in June and property investment contracting.
Here’s a look at economists’ key takeaways following the data release:
GDP growth target under threat
Citigroup Inc. economists lowered their forecast for GDP growth this year to 5% from 5.5%, saying Beijing’s official target — set in March at around 5% — was now at risk.
The new projection takes into account “more realistic” policy support over the coming months, the economists including Yu Xiangrong wrote. They said while a meeting of the Communist Party’s Politburo later this month will provide clues about policy thinking, there are risks that policy could “fall behind the curve or short of expectations.”
JPMorgan trimmed its forecast to 5% from 5.5%, while Morgan Stanley reduced its estimate to 5% from 5.7%. United Overseas Bank Ltd., Capital Economics Ltd. and Societe Generale SA also lowered their predictions.
No major policy stimulus package on the cards
Investors should trim their expectations for a “fast, cure-all package” of stimulus measures, said Nomura Holdings Inc. Chief China Economist Lu Ting.
“We don’t think today’s data will push Beijing to step up stimulus measures,” he said, though Nomura held its GDP forecast for 2023 at 5.1% expansion.
While Lu expects Beijing to introduce some supportive measures, including two policy rate cuts of 10 basis points and additional fiscal transfers to local governments, he said “these measures may not turn things around.”
Lu cited challenges including weak confidence, the collapse of land sales as a revenue source creating a “huge fiscal cliff,” along with “clogged transmission channels, a shrinking tool box” and “slow decision-making on economic matters.”
Frederic Neumann, chief Asia economist at HSBC Holdings Plc., said that overly stimulating demand right now “may prove counter-productive by stoking the build-up in debt and accentuating some of the economy’s imbalances, such as its reliance on a vast housing construction sector.”
Budget constraints of local governments may be another factor limiting stimulus, according to Zerlina Zeng, senior credit analyst at CreditSights.
Property market recovery is key to growth prospects
Beijing will need to revive the housing market in order to see better growth in the economy, said Jacqueline Rong, chief China economist at BNP Paribas SA.
“The only growth driver left is investment, whose biggest problem is property,” Rong said. “The most urgent support needed for property is to stabilize the supply side — too many developers have been in trouble and there can’t be more large-scale defaults, otherwise housing development will come to a halt.”
Consumer confidence is waning
Monday’s data showed a marked slowdown in retail sales growth — June’s figure grew 3.1% from the prior year. That was worrying, according to Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings.
“What we all expected was a consumption and service-led recovery. If that is sputtering, then there’s no engine left for the recovery,” Kuijs said, nodding to concerns about trouble in exports — which had been a driver of growth for the last few years — as well as real estate.
“If exports and real estate are both weak, that means we cannot expect too much on the industrial side,” Kuijs said.
Youth unemployment to climb further
China’s youth unemployment rate, which was above 20% for a third consecutive month, could climb even higher in July, government officials warned on Monday. It’s expected to cool after the summer — a traditionally high time for unemployment among young people, when they have graduated and are looking for jobs.
“The youth unemployment rate is more of a structural issue,” said Ding Shuang, chief economist for Greater China & North Asia at Standard Chartered Plc. He added that the government will likely take more targeted measures to address that issue, rather than “blanket stimulus” including interest rate cuts.
Deflation risk is now real
Concerns about deflation mounted last week after China reported no growth in consumer prices in June and a 5.4% contraction in producer prices. Monday’s data showed the GDP deflator, a measure of economy-wide prices, was negative in the second quarter for the first time since 2020. The deflator is calculated as the difference between the nominal GDP growth rate and inflation-adjusted rate.
The “risk of deflation is serious,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management.
–With assistance from Rebecca Choong Wilkins and Yujing Liu.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
