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Weaker than expected Chinese growth figures have fuelled fears of a global recession as coronavirus lockdowns continue to plague the world’s manufacturing powerhouse.
The country’s economy grew just 0.4 per cent in the three months to June, the second-worst quarterly figure in 30 years and far below forecasts of 1.2 per cent. It is also a steep drop from the 4.8 per cent recorded in the first quarter. China is now expected to miss its target of 5.5 per cent annual growth, itself a three-decade low.
The quarter included a two-month lockdown in Shanghai that exposed global supply chains, with multinationals from Apple to Tesla to Estée Lauder warning of disruption to their business from the city that handles 20 per cent of China’s international trade.
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The effects of Beijing’s zero-Covid policy have also been a recurring feature of the current company results season.
British luxury goods company Burberry today said lockdowns were to blame for a 35 per cent fall in same-store sales, while Richemont, which sells watches and jewellery, said sales had fallen 37 per cent. Mining company Rio Tinto said they had caused demand to “trough” in its biggest market.
Macau, the world’s biggest gambling hub, remains shut. Shares in its big operators, including MGM China, SJM Holdings and Wynn Macau are down 60 per cent in the past year, with operating margins turned negative since 2020. “On both counts, there are further declines ahead,” says the Lex column.
There are also signs that as Chinese consumers emerge from lockdown they are re-evaluating their spending, especially when it comes to luxury goods.
The weak GDP reading also helped push down the price of copper, widely regarded as a measure of economic activity because of its widespread manufacturing use, as recession fears hit commodities markets.
The Chinese property sector remains a drag on growth. Regulators are currently trying to damp down panic over the cost of loans as homeowners join a mortgage boycott of unfinished houses. Developers in some parts of the country have even begun accepting garlic, watermelons, wheat and barley as down payments from farmers on new apartments.
Today’s figures have fuelled expectations that Beijing could be preparing a huge new stimulus programme to revive growth. Local governments will be allowed to issue an additional Rmb1.5tn ($223bn) worth of bonds this year, brought forward from next year’s quota.
Coronavirus infections meanwhile continue to rise, particularly from the BA.4 and BA.5 variants, with 11 Chinese cities under full or partial lockdowns, affecting almost 115mn people, according to Japanese bank Nomura.
Hong Kong, where even feng shui masters have been thrown off balance by Covid restrictions, yesterday reported more than 3,600 new cases, while Shanghai residents fear another mass lockdown could be on the way.
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Need to know: the economy
Investors are demanding a higher premium to hold Italian debt after political tensions led prime minister Mario Draghi to offer to stand down as his national unity coalition began to splinter. President Sergio Mattarella refused the offer, creating time for politicians to patch together a compromise and avoid an early election.
Latest for the UK and Europe
The British Chambers of Commerce urged the UK government to revamp the post-Brexit list of occupational shortages, after warning that many companies were struggling to recruit workers.
Brussels increased its eurozone inflation forecast for this year from 6.1 per cent to 7.6 per cent, followed by 4 per cent next year. GDP growth was revised down to 2.6 per cent for 2022 and 1.4 per cent in 2023. Investors are betting the euro sell-off will continue as recession fears grow. Surging energy prices have led to the largest eurozone goods trade deficit since records began in the first five months of the year.
French president Emmanuel Macron urged the country to do more to save energy as it braces for Russia to cut off gas imports and the war in Ukraine drags on. Shell chief Ben van Beurden also warned that Europe may need to ration energy this winter, and predicted “significantly” higher prices if Russia chokes off gas supplies. The EU meanwhile has drastically cut back imports of Russian thermal coal ahead of a full ban next month.
Labour shortages across southern Europe could mean delays in large construction projects funded by the EU’s €750bn Covid recovery fund, which has a major focus on infrastructure investment.
The UN said Ukraine and Russia were making progress on averting a global food crisis by securing safe passage for grain through the Black Sea. For an update on the military situation here’s our Big Read on what the next six months might bring.
Global latest
US producer prices rose 11.3 per cent in June in the latest evidence of US inflationary pressures. The Federal Reserve is under pressure to abandon its guidance on monetary policy. One of its top officials left the door open for a possible full percentage point rise in interest rates at the end of the month.
Sri Lankan president Gotabaya Rajapaksa resigned after a week of protests over shortages and soaring inflation. The situation has reignited fears that other emerging countries could be heading into similar problems of debt default and political upheaval.
Pakistan said a deal with the IMF to release $1.2bn of a stalled lending package offered a path out of the country’s economic crisis. The total size of the package was also raised from $6bn to $7bn.
Need to know: business
Quarterly earnings season on Wall Street is turning quite dramatic. BlackRock, in what it described as the worst market environment in decades, reported assets under management falling to $8.5tn; JPMorgan Chase said net income had fallen 30 per cent as it announced it was suspending share buybacks to meet new Federal Reserve rules on capital requirements; and Morgan Stanley said profits had also fallen 30 per cent as investment banking fees dried up from the slowdown in stock market listings. It also expects to pay a $200mn penalty after a federal investigation into misuse of personal devices.
Citigroup was a rare bright spot as it reported higher-than-expected earnings as trading and cash management offset rising credit costs and a drop in deal activity.
Amazon joins the UK’s top 10 private sector employers with its announcement of more than 4,000 new permanent jobs, even as the group experiences a slowdown in overall revenue growth. It has also offered to stop using huge volumes of data it gathers from third-party sellers to benefit its own retail business as part of a deal with Brussels.
The era of the Great Moderation is over: welcome to the Great Exasperation. Markets editor Katie Martin assesses vibe management among investors when even the golden rule of buying when everyone else is selling seems to be out.
Web3, which its techno-utopian advocates say will create a new democratised internet out of reach of today’s tech giants, is just the same old crypto nonsense, writes Alphaville’s Jemima Kelly.
Watch our new film on Credit Suisse, which has been hit by a string of high-profile scandals, from corporate espionage to cocaine smuggling.
Science round up
The Omicron sub-variant BA. 2.75 is spreading across India and parts of Europe. The WHO warned that the Centaurus strain could be better than others at overcoming immunity from prior infection and vaccines.
European health agencies backed a second Covid booster for the over-60s as the BA.5 Omicron sub-variant drives an increase in hospitalisations. The move is also noteworthy for marking support for the wider use of current mRNA shots before Omicron-targeted versions are introduced later this year.
The WHO and Unicef published new data showing the biggest drop in childhood vaccinations against diphtheria, tetanus and pertussis in 30 years because of global conflict, misinformation and disruption from the pandemic.
Investing more money in the next Covid vaccine is not only likely to create scientific spillovers for other vaccines but is the best way we have of reducing the risk of disaster, says columnist Tim Harford.
Doubts have grown about the effectiveness of Pfizer’s antiviral drug Paxlovid which was initially greeted last year as a key to “living with Covid”.
Moderna chief Moubar Afeyan tells the FT about the race to create a Covid vaccine and potential new applications for messenger RNA — a genetic material that transports messages from our DNA to protein-making cells within the body — to deliver vaccines.
More than 1bn Covid-19 vaccines — more than 10 per cent of all shots produced — have been wasted due to their lopsided distribution, vaccine hesitancy and storage problems, according to a new analysis.
Get the latest worldwide picture with our vaccine tracker
And finally.
Don’t despair — prepare! With passenger numbers limited at Heathrow (a policy dubbed “airmageddon” by Emirates), flight cancellations and rising Covid cases, this summer above all others it really pays to take some extra precautions before heading for the airport, says consumer editor Claer Barrett.
Source: Economy - ft.com
