Australia’s economic growth slows in March quarter despite rise in household spending - The Guardian

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Australia’s economic growth slows in March quarter despite rise in household spending  The Guardian
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Varcoe: After years of budget famine, Alberta's finances set to feast on growing economy and high oil prices - Calgary Herald

The province’s new leader will have to grapple with a different kind of behemoth: How should Alberta best handle a multibillion-dollar surplus?

Publishing date:

May 31, 2022  •  16 hours ago  •  4 minute read  •  16 Comments

Pumpjacks northwest of Calgary were photographed on Tuesday, March 8, 2022. Gavin Young/Postmedia

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Alberta premiers have spent much of the past decade wrestling with unwieldy budget deficits.

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The province’s new leader will soon have a different kind of behemoth to grapple with: How should Alberta best handle a multibillion-dollar surplus?

Benchmark oil prices closed above US$117 a barrel on Monday as the war in Ukraine continues and the European Union is contemplating a ban on all Russian crude imports.

In Alberta, the economy is continuing to grow. Commodity prices are heading higher, putting the province on track to easily eclipse the $511-million surplus forecast in February’s budget.

The financial blueprint was based on oil averaging $70 a barrel and the economy growing by 5.4 per cent this year.

Since the start of the fiscal year in April, West Texas Intermediate (WTI) crude prices have averaged $105 a barrel.

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Even if oil prices suddenly tumbled back to $70 a barrel, the province would still be looking at a $2.5-billion surplus, said University of Calgary economist Trevor Tombe.

If oil remains around $100 a barrel, the surplus would clock in around $12 billion to $13 billion, he estimated.

“At $110 a barrel, we are talking about every single month that goes by, the projected surplus for the entire year needs to be revised upwards by a billion dollars, so it’s truly massive,” said Tombe.

“Right now, where the futures (prices) are, we’re absolutely in surplus territory in excess of $10 billion.”

The economy is also expected to expand at a rapid clip.

The Conference Board of Canada will put out a report Tuesday that projects Alberta’s gross domestic product will expand by 6.6 per cent this year, up from its previous estimate of 5.9 per cent.

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Board chief economist Pedro Antunes expects U.S. oil prices to average $94 a barrel in 2022, leading to a surge in provincial resource royalties.

“This is a time when we should be running surpluses and should be putting some of that away for the tougher times — because oil prices probably are not going to stay where they are for the longer term,” Antunes said Monday.

Alberta has recorded 12 budget deficits in the past 13 years, but the province’s fiscal picture has improved dramatically since a massive $17-billion deficit was recorded in the first year of the pandemic.

The February budget released by Finance Minister Travis Toews forecast three small surpluses of less than $1 billion annually for the coming years. Yet, every $1-per-barrel jump in WTI oil prices over the course of the budget year increases provincial revenues by $500 million.

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“I believe there still remains volatility risk,” Toews said last week in an interview.

“Yes, we may be dealing with a large surplus, that would be a good problem to have, but (we’re) not counting our chickens too early.”

But as the weeks roll by, the question will be asked — particularly as the UCP chooses a new leader to replace Premier Jason Kenney — what the province plans to do with windfall revenues?

The budget document notes any surplus up to the value of the annual earnings of the Alberta Heritage Savings Trust Fund, pegged at about $2 billion this year, would be retained in the fund, instead of flowing into general government revenues.

“We will stop robbing the Heritage Savings Trust Fund of its investment earnings,” Toews said. “We will then take a look at a combination of debt repayment and additional trust fund reinvestment.”

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Provincial taxpayer-supported debt now sits near $95 billion.

Banking on a commodity price boom can be dangerous business, as Toews and other Alberta finance ministers have learned the hard way in the past.

Other economic issues also warrant watching. Concerns surrounding inflation, higher interest rates and the potential of a global recession have increased in recent months.

With oil supply and demand now close to being in balance, it’s likely crude prices will remain above $100 a barrel for the rest of the year, absent a global recession, said Rory Johnston, managing director and market economist at investment firm Price Street.

“Going forward to the end of the year, my bias is we are closer to the $150 mark,” he said.

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The provincial government has already committed to some unbudgeted spending, such as removing the gasoline tax of 13 cents a litre at the pumps, costing the treasury about $1.3 billion.

Health-care costs have also risen during the pandemic and as the population ages, governments across Canada face increased pressure to boost funding for the medical system, said Antunes.

“Our priorities would be to help Alberta families and businesses keep up with the cost of living, stabilize and strengthen our health care and education system, and to invest for the future,” NDP MLA Shannon Phillips said in a statement.

The province should use surpluses to increase funding for health care, kindergarten to Grade 12 classrooms, and to help post-secondary institutions that have seen funding slashed, said Alberta Federation of Labour president Gil McGowan.

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“If they have this tidal wave of revenue coming, they need to reverse the damage they’ve done to our province through cuts to public services over the past three years,” McGowan said.

Whatever happens next, a broader conversation with the public should take place, said former Alberta treasurer Jim Dinning.

Dinning, finance minister under Ralph Klein when the province chopped spending and later balanced the books in the 1990s, believes it’s tougher to manage expectations during periods of growing budget surpluses than deficits.

“When you have a horn of plenty spilling over the tabletop in surplus times, there are all sorts of ideas — some brilliant, mostly crazy — that everyone from ministers to mayors will come up with,” Dinning said.

“The horn of plenty needs to be properly managed so that people think about the longer term. Peter Lougheed tried to do this with the Heritage Fund. And what better time to be thinking again about the Heritage Fund and some of that abundance being reinvested or plowed in?”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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Varcoe: After years of budget famine, Alberta's finances set to feast on growing economy and high oil prices - Calgary Herald
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China uses digital yuan to stimulate consumption in COVID-hit economy - The Globe and Mail

China is using the digital yuan to stimulate consumption in its pandemic-hit economy, with more e-CNY applications expected in future to boost transparency and effectiveness of government policies.

The southern city of Shenzhen started distributing 30 million yuan ($4.50-million) worth of free digital cash on Monday to revive consumption and aid businesses. It comes days after Xiong’an New Area in northern Hebei province, launched a similar campaign to hand out 50 million yuan worth of e-CNY “red packets” as gifts.

China is at the fore of a global race to develop central bank digital currencies. Issuing e-CNY subsidies can both aid consumption and further promote use of the electronic yuan.

Transactions using e-CNY totalled 87.6 billion yuan at the end of 2021, with 261 million individual e-wallets opened, according to the central bank.

“Previously, when the government issued subsidies, there could be certain obstacles before the money reaches the recipients,” said G. Bin Zhao, senior economist at PwC China.

“With e-CNY, the cash directly lands into your hands,” boosting transparency, he said.

Zhao added that in the future, the government can use e-CNY for pension payments, fiscal subsidies and even infrastructure spending.

Xia Chun, chief economist at wealth manager Yintech Investment Holdings, said that compared with traditional means, e-CNY is more efficient and swift when it comes to subsidies, although he feels the size of the current consumption stimulus is too small.

Lin Yifu, an economist at Peking University said in a speech earlier this month that China should hand out 1,000 yuan to each family in locked-down areas, half of which can be in digital yuan.

In the latest campaign, consumers in Shenzhen can join a lottery for the free e-CNY, which can be used to shop online or at stores. In Xiong’an, digital cash subsidies can be used to buy products including food, electronics appliances and furniture.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

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Japan’s factory output slumps in worrying sign for economy - Al Jazeera English

Factory production falls 1.3 percent in April as China’s lockdowns and the Ukraine war weigh on manufacturers.

Japan’s factory output fell sharply last month as China’s draconian “zero COVID” policies and supply chain blockages hampered manufacturing and dampened prospects for growth in the world’s third-largest economy.

Factory production fell 1.3 percent in April compared with the previous month, government data showed on Tuesday, amid steep declines in the manufacture of items including electronic parts and machinery.

The weak figures, which mark the first decrease in three months, came a day after Toyota Motor Corp missed its global production target for April after output declined more than 9 percent year-on-year.

Toyota, the world’s biggest carmaker by sales, last week downgraded its global production target for June while signalling the possibility of slashing production for the whole year.

Shigeto Nagai, head of Japan economics at Oxford Economics, told Al Jazeera he sees waning domestic demand, especially private consumption, as a bigger risk to Japan’s economy than slowing industrial activity.

“Although we are now seeing an impressive recovery driven by pent-up demand, the strength of consumption will be severely constrained by a sharp squeeze in real household income caused by a combination of higher inflation and stagnant wage growth,” Nagai said.

“The weak yen is also clearly a negative to households and consumption, which is supposed to take a lead in the coming recovery after the coronavirus.”

Despite slowing industrial activity, separate retail sales and unemployment figures showed healthy gains.

Retail sales posted the largest rise in nearly a year as consumers ramped up spending after the government eased COVID-19 restrictions, despite rising inflation that threatened to sap demand. Retail sales grew 2.9 percent in April, the biggest jump since May 2021 and well ahead of market forecasts. The jobless rate stood at 2.5 percent, the lowest in more than two years.

“We ought to be on the watch for tighter labour market conditions leading to wage growth, which is the key that the Bank of Japan has been looking for to gauge a sustainable inflation trend,” ING economists said in a note.

While Japan’s services sector has rebounded from the COVID-19 pandemic, manufacturing has faced disruptions and higher material prices due to China’s ongoing lockdowns and Russia’s war in Ukraine.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expect output to return to growth in May, growing 4.8 percent, followed by a 8.9 percent advance in June.

“I think the slowdown in industrial production today is temporary mainly reflecting disruptions in supply chains and production activities by COVID-related lockdowns in China,” Nagai said.

“Japan’s exports and production will continue to be affected by the lockdowns for another few months but will regain momentum thereafter. We have limited concern about the prospect of Japan’s manufacturing activities amid strong demand for high-end capital goods and autos. The weak yen will also help exports.”

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Shanghai Releases 50 New Support Measures to Restart Economy - China Briefing

To restart its economy after a prolonged shutdown due to COVID-19 outbreaks, Shanghai authorities have proposed several new support measures in eight categories in their latest Action Plan, released May 29, 2022. These impact tax liabilities, support for operating costs, access to subsidies, and eligibility for exemptions, among other things. Enterprises don’t have to seek approval for the resumption of work and production from June 1, 2022 – they can make this decision based on the epidemic situation of the area where they are located, thereby avoiding any burdensome application procedures.

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After a nearly two-month lockdown, Shanghai is ramping up new supportive measures to reboot its economy. On May 29, 2022, the Shanghai Municipal Government released its Action Plan of Shanghai for Accelerating Economic Recovery and Revitalization (Action Plan), which provides 50 measures in eight areas.  

According to the Action Plan, Shanghai will abolish the approval system for enterprises to resume work and production starting from June 1, 2022. A series of policies to stabilize foreign investment, promote consumption, and increase investment have been proposed.  

In this article, we walk you through key points in the Action Plan and discuss the most relevant measures for businesses.  

Relief measures for companies 

Deferment of fund and tax payments

The payment of social insurance premiums will be delayed in stages for companies in the catering, retail, tourism, aviation, and road, waterway, and rail transport industries from April onward. The deferments will be delayed as follows: 

• Payment of pension and medical insurance premiums can be deferred up until the end of 2022
• Payment of unemployment and work-related injury insurance premiums can be deferred for a period of up to one year
• Late payment fees will be waived during the deferred payment period

In addition, employers that have been impacted by the COVID-19 containment measures can apply for deferred payment of housing provident funds. The deferral period is from April to December 2022, after which the payments must be made. During this period, employees who have already made payments and deposits can withdraw payments and apply for housing provident fund loans as normal and will not be impacted by the deferral of payments. 

People who have made deposits and have been impacted by the pandemic and cannot repay the housing provident loan as normal will not be subject to overdue fees, nor will this be included in their credit record. In addition, the withdrawal limit for employees who apply to withdraw housing provident funds to pay rent has been raised from RMB 2,500 (US$375) to RMB 3,000 (US$450) per household (including single-person households). 

Finally, the deadline for taxpayers who file monthly and quarterly tax returns has been pushed back to June 30. The deadline for paying 2021 corporate income tax (CIT) has also been extended to June 30. Taxpayers who still have difficulties settling the tax liabilities at this time can either apply for an extension of filing declaration or a deferral of tax payment for up to three months to the tax authorities. 

Expanding the scope of rent reduction and exemption policies

Micro and small-sized enterprises (MSEs) and sole proprietorships that engage in production and business activities and rent state-owned property have previously been exempted from rent payments for a period of up to six months, without requiring them to provide proof of having been impacted by the pandemic.  

Subletters do not have the right to the rent exemption and the property owners are required to ensure that the rent exemption is extended to the primary lessee only. 

Non-state-owned property owners will also be encouraged to reduce rent for MSEs and sole proprietorships that lease their property for business. Certain eligible companies that reduce rent for these businesses can get a subsidy of 30 percent of the total rent waived, capped at RMB 3 million (US$450,220), although the final amount will be controlled in accordance with local government budgets. 

Measures for reducing operating costs

Non-resident users of utilities are eligible for up to 10 percent subsidies for water (including sewage treatment), electricity, and natural gas (except for gas used by gas-fired power generation companies). In addition, non-resident users will not have these utilities cut off if they fail to pay the fees in time during the COVID-19 containment period and will not be subject to any penalties. In addition, non-resident users will be exempted from over-quota and progressive water charges in 2022.  

Several other utility and fee reduction measures will also be imposed, including: 

• A 10 percent decrease of the average tariff of broadband and private lines for small and medium-sized enterprises (SMEs).
• A three-month waiver of unit domestic waste disposal fees.
• A 50 percent reduction of the current standard of administrative fees for special equipment inspection and testing will be reduced to 50 percent from April to December 2022. 
• In the field of bidding, letters of guarantee (insurance) will be fully implemented in lieu of cash to pay deposits for actions such as bidding, contract performance, and project quality. Those who request bids will also be encouraged to waive bid guarantees for micro, small, and medium-sized enterprises (MSMEs) making bids.

Tax rebates and reduction measures

The measures propose further expanding the VAT rebates extended to companies in six key industries to more industries. 

Currently, all companies in the following six industries, as well as MSEs, can apply for VAT rebates: 

• Manufacturing
• Scientific R&D and technology services
• Electricity, heating, gas, and water production and supply
• Software and information technology services
• Ecological protection and environmental governance
• Transport, logistics, warehousing, and postal

The measures also call for issuing the VAT rebates for medium-sized and large enterprises in advance and issuing VAT rebates for all companies on the basis of voluntary participation by June 30, 2022. 

See our full article on the VAT rebates for companies in Shanghai for more details. 

Moreover, companies that struggle to pay real estate and urban land use tax can apply for the reduction or waiver of real estate tax on property and land for their own use and urban land use tax. However, companies engaging in industries whose development is restricted or discouraged by the state are not eligible for these tax waivers or reductions. 

Subsidies for maintaining or increasing headcount and training staff

Companies in industries hard-hit by the pandemic, such as catering, retail, tourism, transport, hospitality, and exhibitions are eligible for certain subsidies if they do not lay off staff or lay off few staff members. These companies are eligible for RMB 600 (US$90) in subsidies for each staff member, capped at RMB 3 million (US$450,220) per company. The full amount is calculated based on the number of urban employees that the company paid social insurance premiums for in the month prior to the application. 

Companies can also be eligible for a one-time subsidy of RMB 2,000 (US$300) for each person they employ that has been unemployed for over three months or are 2022 graduates from universities in Shanghai. To be eligible, the companies must sign a labor contract of at least one year with the employee and pay social insurance premiums as required by law. 

Certain eligible companies that employ 2022 graduates from universities in Shanghai can receive RMB 7,800 (US$1,170)  in tax reductions for each fresh graduate they employ per year within three years. The measures did not provide details on eligibility criteria. 

Companies and social organizations that have been impacted by the pandemic are also eligible for subsidies for providing online vocational training related to the business to their staff members and employees. The employer can receive a subsidy of RMB 600 (US$90) for each employee receiving the training up to three times in 2022. Employees who obtain vocational qualification certificates for skilled personnel and vocational skill grade certificates can also receive subsidies. 2022 graduates can also return to their original schools to participate in skill level recognition and receive vocational skills improvement subsidies before the end of the year. 

Measures for resumption of work and production 

At the press conference where the Action Plan was released on May 29, Wu Qing, executive vice mayor of Shanghai, said that Shanghai will dynamically revise the Guidelines for Epidemic Prevention and Control for Industrial Enterprises in Shanghai and remove unreasonable restrictions on the resumption of work and production.  

Starting from June 1, 2022, enterprises will no longer be required to apply for approval for resuming work and production. That is to say, enterprises can arrange work and resumption production based on the epidemic situation of the area where they are located, without going through the lengthy and burdensome application process.  

The Action Plan also proposed the below measures to support work and production resumption: 

Ramping up government supports and services for resumption of production, work, and market

The Action Plan promised to amend the work and production guidelines for different industries in a classified and timely manner. The unreasonable restrictions on resumption of production, work, and market shall be removed.  

Different districts will work in a coordinated manner to help workers returning to work, ensure logistics support, and coordinate the resumption of upstream and downstream productions.  

The scope of subsidies for enterprises’ epidemic prevention and control expenses will be expanded. In 2022, on the basis of the existing subsidies for retail, catering, airports and ports, and cold-chain enterprises, Shanghai will provide targeted subsidies for property services, postal and express delivery, accommodation, cultural tourism, and other industries. All districts are encouraged to subsidize the epidemic prevention and control expenditures of enterprises that have resumed work and production according to their actual scale of operation. 

According to the Action Plan, the resumption of production and work of different industries shall be arranged as below: 

• Automobile, integrated circuit, bio-pharmaceutical and other manufacturing enterprises shall be prioritized to ensure coordinated resumption of production in the whole supply chain.
• The resumption of work in wholesale and retail, finance, transportation and logistics, real estate, construction and other industries shall be promoted gradually.
• The resumption of work in various agricultural production units shall be promoted as soon as possible.
• The resumption of work in catering, residential services, cultural tourism, exhibition, and other industries where people gather shall be promoted when conditions permit.

Ensuring the smooth flow of domestic and international logistic channels

The Action Plan promised Shanghai will move faster to promote the unified and mutually recognized passes across the country, improve the efficiency of trans-provincial transport transit stations, promote contactless logistics, and improve the efficiency of freight transport.  

The delivery methods and quarantine procedures at ports and airports shall be optimized to ensure the orderly operation of industrial chains, supply chains, and shipping and logistics. 

Shanghai will accelerate the implementation of the support policies issued by the state to logistic companies. In the period from May 1, 2022 to the end of the year, VAT will be exempted for eligible express delivery service, and funds from reloans will be used to support financing for the transport, logistics and storage industries. 

Measures for supporting foreign investment and foreign trade  

Foreign investment and foreign trade were emphasized in the Action Plan. The Shanghai government promised to provide specialized service to help foreign invested enterprises (FIEs) and enterprises engaging in foreign trade resume work and production and get through difficulties.  

Measures to stabilize foreign investment

The Action Plan said Shanghai shall establish a service mechanism for the resumption of work and production in key FIEs. Specialized personnel shall follow up with relevant FIEs to solve issues that FIEs encounter regarding resumption of work and production, logistics, and COVID-19 control and prevention.  

Besides, the Shanghai government will take measures to ensure the smooth promotion of key foreign invested projects. Multinational companies are encouraged to set up regional headquarters and R&D centers in Shanghai. The application of special funds for encouraging the development of regional headquarters of multinational corporations in 2022 in Shanghai will be advanced. The Shanghai government will strive to complete the allocation of the funds by the end of September. 

Moreover, the Action Plan said Shanghai will establish a normalized inquiry-and-solution mechanism to listen to the opinions and suggestions of FIEs and help FIEs solve practical problems. 

In addition, Shanghai government will facilitate the invitation letter and entry and exit procedures for foreign employees and their families of FIEs, global executives and professional and technical personnel carrying out important business activities in Shanghai, as well as important overseas customers of foreign trade enterprises. 

Measures to support foreign trade

The Action Plan said Shanghai will speed up the implementation of the foreign trade support policies introduced by the state. For example, enterprises engaging in processing trade shall be allowed to deduct the input VAT that is overly transferred out. Where an enterprise fails to collect foreign exchange for its export business declared for tax refund and obtains export credit insurance claims, the export credit insurance claims shall be regarded as foreign exchange received, and export tax refund shall be processed accordingly. 

Shanghai will also strengthen policy and financial support for foreign trade enterprises. Among others, the export credit insurance will be expanded to cover more micro, small and medium-sized enterprises (MSMEs). The premiums of the export credit insurance can be paid in deferment and the claim settlement will be accelerated. For MSMEs with special and new technologies, a phased reduction of no less than 10 percent of the existing export credit insurance premium rate will be granted. Shanghai will also seek to actively use policy-based lending with preferential interest rates to reduce the financing costs of foreign trade enterprises. 

Customs clearance facilitation measures will be provided to help foreign trade enterprises fulfil their orders. Foreign trade enterprises are encouraged to handle customs clearance online, with consignors and consignees being exempted from on-site inspection. Green custom clearance channels will be established for key enterprises.  

Council for the Promotion of International Trade Shanghai (Shanghai CPIT) will issue proof of force majeure related to COVID-19 to eligible and needed enterprises affected by the epidemic for free.  

Measures for boosting consumption and accelerating recovery

Spurring consumption will be key for economic recovery in the aftermath of the current wave of COVID-19. The government has previously unveiled a host of measures to increase spending, which range from short term stimulus in the form of coupons and subsidies to long-term development of shopping infrastructure. 

Many of the measures proposed in the Action Plan echo those previously raised in other policy documents, with some notable concrete actions for boosting consumption in some of the city’s key industries, such as passenger vehicles. 

Promoting consumption of large commodities

To boost car sales in Shanghai, the action plan announced the following measures: 

• Increasing the quota of non-commercial passenger vehicle license plates by 40,000 in 2022
• Implementing staged reduction of the purchase tax on some passenger vehicles
• Handing out subsidies of RMB 10,000 (US$1,500) for people who get rid of or swap an old car registered in Shanghai out to buy a new electric car before December 31, 2022.

In addition to passenger cars, the Action Plan seeks to encourage people to replace old appliances or building materials with new ones through a “trade-in” plan. This plan will include providing subsidies to buy green smart home appliances, green building materials, and energy-saving products. Large malls and e-commerce platforms will also be encouraged to implement trade-in programs and increase consumption of large appliances and electronics through discounts, subsidies, and product promotions. 

Boosting consumption in culture, tourism, and sports industries

The Action Plan calls for the use of “special funds” to provide support for development of the film industry, cultural and creative industries, tourism, and sports. In addition, the plan proposes for increasing support for performance venues, cinemas, physical bookstores, fitness venues, and other onsite venues through free funding, loan interest discounts, and other financial means. 

Qualified travel agencies will now also be able to get a temporary 100 percent refund of the “travel quality deposit”. The travel quality deposit is a fee that travel agencies must pay to the China National Tourism Administration (CNTA) to provide government services and protection for tourists. This is an increase from the previous refund ratio of 80 percent announced in February of this year. 

Measures for boosting investment

In terms of boosting investment, Shanghai plans to complete the reconstruction of old areas in the central urban area and launch more than eight reconstruction projects of urban villages within the year. Besides, corporate bond filings and issuance will be supported, and the new infrastructure projects will be included in the scope of special-purpose bonds (SPB) issued by local governments. 

Shanghai will vigorously promote the resumption of construction and production of projects under construction. The construction of key infrastructure projects such as major railway corridors, rail transport networks, aviation hubs, ports, energy, inland waterways, water conservancy, and underground utility tunnels will be prioritized. Supportive measures will also be given to major industrial projects such as integrated circuits and new-energy vehicles. 

Shanghai will also promote the healthy development of investment in real estate development, establish a green channel for the preliminary approval of real estate projects, and promptly launch the listing and supply of a new batch of new commercial housing projects on the market. The whole process including early planning, land acquisition, construction, and sales will be further shortened. And the urban infrastructure fee for newly started residential projects can be deferred for three months. This is considered a positive signal for the struggling real estate sector, which has been caught by China’s enhanced regulation on the sector since last year.  

The Action Plan also supported local governments to apply for SPB for financing new infrastructures and encouraged more eligible existing infrastructure projects to issue REITs. 

Other measures

In addition to the above measures, the Action Plan also promised to increase fiscal support for maintaining steady growth. Financial institutions are encouraged to provide loans to MSMEs, individual businesses, as well as truck drivers. and housing and consumer loans for individuals affected by the epidemic and eligible individuals. Qualified asset management institutions are encouraged to participate in the qualified Foreign Limited Partner (QFLP) and Qualified Domestic Limited Partner (QDLP) trials and set up global or Asia-Pacific investment management centers in Shanghai to facilitate their cross-border two-way investment. 

Moreover, the land supply and business environment in Shanghai will be improved further to ramp up the economy affected by the lockdowns.  

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About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.

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This age of inflation reveals the sickness ailing Britain’s economy: rentier capitalism - The Guardian

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This age of inflation reveals the sickness ailing Britain’s economy: rentier capitalism  The Guardian
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More signs that a major shift in the economic narrative could be underway - Yahoo Finance

This post was originally published on Tker.co.

There’s more evidence that the economic narrative could be undergoing a major shift.

For months, we’ve been living in an economy in which strong demand has been met with lagging supply, causing inflation inflation to surge. We now appear to be shifting to a phase where demand growth is cooling and supply chains are easing, which should cause inflation to come down.

According to Census Bureau data released Wednesday, orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — climbed 0.3% to a record $73.1 billion in April.

While the 0.3% growth rate represents a deceleration from the 1.1% rate in March, it’s the kind of slowing that’s welcome news for folks like the Federal Reserve, which is actively working to cool economic growth in its effort to bring down inflation.

“That is consistent with our view that economic activity is bending rather than breaking under the impact of higher rates,” Michael Pearce, senior U.S. economist for Capital Economics, said in a note on Wednesday.

Core capex growth represents a massive economic tailwind. And the fact that it continues to grow, albeit at a decelerating pace, is a good sign for economy-wide growth.

According to S&P Global Flash US Manufacturing PMI report released on Wednesday, these emerging economic trends have continued into May. Specifically, the composite output index fell to a four-month low of 53.8 in May. For this index, any reading above 50 signals growth, and so the declining number suggests growth is decelerating.

“Growth has slowed since peaking in March, most notably in the service sector, as pent up demand following the reopening of the economy after the Omicron wave shows signs of waning,” Chris Williamson, chief business economist at S&P Global Market Intelligence, wrote on Wednesday.

Consumer spending growth cools as excess savings get tapped

Growth appears to be cooling on the consumer front too.

According to a BEA report released Friday, personal consumption expenditures (i.e., consumer spending) increased by 0.9% in April from the prior month to new record levels. However, this was a healthy deceleration from March’s 1.4% growth rate.

The spending came as the saving rate (i.e., the difference between income and spending) fell to its lowest level since September 2008.

While this development on its own is unsettling, it comes after consumers spent over two years accumulating over $2 trillion in excess savings.

“It looks like households have been eating into the ‘excess saving’ that was built up at earlier stages of the pandemic in order to fuel consumer spending in recent months,” Daniel Silver, economist at JPMorgan, wrote in a note on Friday.

As we’ve discussed frequently on TKer, these excess savings represent a massive economic tailwind. For a while, you could argue that it was exacerbating inflation. But now it appears to be bolstering spending as the economy slows.

News of a slowdown is not exactly the kind of thing that warrants a celebratory tone. But it’s exactly the kind of thing that should help bring inflation down.

More signs that supply chains are easing

S&P’s PMI report also suggested there could be some daylight in the disrupted supply chains.

“Manufacturers in particular also report that capacity continues to be constrained by supply shortages, though these bottlenecks showed further encouraging signs of easing,“ S&P’s Williamson said (emphasis added).

It’s also been a while since we’ve heard about ships idling outside of ports waiting to be unloaded.

“U.S. port data suggest easing backlogs,” JPMorgan economists wrote last week. “Notable examples are the ports of Los Angeles and Long Beach, which process about 40% of total imports into the US.”

And it’s not just ocean freight that’s loosened. Trucking freight seems to be loosening too.

According to BofA’s Truck Shipper Survey for the week ending May 19, “shippers find it much easier to secure capacity (its highest level since June 2020).“

Unfortunately, at least some of these signs of loosening supply chains can be explained by easing demand for goods. But again, this is the dynamic that should make for easing inflation.

More signs that the labor market is cooling

Bloomberg reported that tech behemoth Microsoft was slowing hiring in its Windows, Office, and Teams businesses.

PayPal laid off 83 employees at its headquarters in San Jose.

These are anecdotes. But the developments are in line with the Fed’s aim of cooling inflation by first cooling the labor market.

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Signs that inflation peaked

Last month, I wrote about how economists across the board were saying that inflation — as measured by year-over-year increases in prices — had peaked.

On Friday, we got more evidence to confirm that may be the case.

The core PCE price index — the Fed’s preferred measure of inflation — climbed 4.9% in April from a year ago. This is down from the 5.2% rate in March and the 5.3% peak rate in February.

On a month-over-month basis, the core PCE price index has climbed by a cool 0.3% over the past three months.

It’s still too early to claim victory on inflation

“Many have touted March as the peak in inflation and are looking for inflation to cool from here,” Grant Thornton Chief Economist Diane Swonk said on Friday.. “We are not as convinced given the risks we still face due to the war in Ukraine and lockdowns in China. Either way, it is important to note that any cooling we see will have a high floor. Both the overall and core PCE indices remain well above the Federal Reserve’s 2% target.”

Indeed, inflation has a long way to go to get to 2% from 4.9%.

And so, we’ll have to keep an eye on the incoming data to see if a major shift in the economic narrative is indeed underway.

—

More from TKer:

Rearview 🪞

📈 Stocks surge, ending 7-week losing streak: The S&P 500 rallied 6.6% last week, ending a seven-week losing streak. It was the biggest one-week gain since November 2020. The index is now down 13.3% from its January 3 closing high of 4796.56, but 6.6% above its May 19 closing low of 3,900.79. For more on market volatility, read this and this. If you wanna read up on bear markets, read this.

💰 Corporate insiders are buying their companies’ stock: From JPMorgan: “…corporate insiders are holding a non-consensus view across most sectors and actively buying the dip with net insider buying activity reaching 1STDev above trend level.“

📈 Mortgage rates are still high, but tick down: The average rate for the 30-year fixed rate mortgage declined to 5.10% from 5.25% the week prior. Here’s Freddie Mac: “Mortgage rates decreased for the second week in a row due to multiple headwinds facing the economy. Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods.“

🏡 New home sales slump: Sales of newly built homes fell 16.6% month-over-month to an annual rate of 591,000 units, according to Census Bureau data.

😤 Consumer sentiment tumbles: The University of Michigan’s index of consumer sentiment fell to 58.4 in May, its lowest level since August 2011. From the survey: “This recent drop was largely driven by continued negative views on current buying conditions for houses and durables, as well as consumers’ future outlook for the economy, primarily due to concerns over inflation.“

Keep in mind that deteriorating sentiment hasn’t come with a decline in spending in recent months. For more on sentiment, read this.

🛫 People are doing stuff: From Yahoo Finance’s Emily McCormick: “On Thursday, both Southwest Airlines and JetBlue raised their quarterly guidance, citing strong demand heading into the critical summer travel season. Both upward revisions came just weeks after the companies initially reported their forecasts last month.“

This follows a similar announcement from United Airlines last week. Altogether, it’s apparent that people are refusing to put their lives on hold.

Up the road 🛣

It’s jobs week in America. Wednesday comes with the April Job Openings & Labor Turnover Survey and Friday comes with the April employment report. Employment growth has been very strong and record-high job openings have enabled workers to earning higher wages.

However, there are nearly two job openings per unemployed. This good news is being blamed for high inflation, which is bad, which is what the Fed is aiming to address with tighter monetary policy.

U.S. financial markets will be closed on Monday for Memorial Day.

Sam Ro is the founder of Tker.com. Follow him on Twitter at @SamRo.

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Opinion: Ukraine's economy needs Canadian support - The Globe and Mail

Goldy Hyder is the president and chief executive officer of the Business Council of Canada.

Farmers prepare to seed sunflowers in a field in Cherkaska Lozova, outskirts of Kharkiv, eastern Ukraine, on May 28.Bernat Armangue/The Associated Press

Ukraine’s new ambassador-designate in Ottawa, Yulia Kovaliv, describes her country’s economy as the “third front” in the war caused by Russia’s unprovoked invasion. This is a decisive front on which Canada can engage. Just as we are already supplying humanitarian aid and military equipment, we must also help support Ukraine’s economy.

Ukrainians have committed countless heroic acts of resistance since Russian troops poured over the border in February. Any such list must include those who risk their lives daily to protect Ukraine’s economy. Every morning, millions of Ukrainians go to work even though their places of business could be targeted by missile strikes.

Remarkably, despite the devastation in those areas subjected to the most horrific fighting and bombing, as of last month less than half of all Ukrainian-based businesses had been forced to scale back operations because of Russia’s invasion, and fewer than 5 per cent of Ukrainian companies had been forced out of business entirely.

Still, no modern, advanced economy can sustain itself without trade and investment. Ukraine wants to do business with Canada and, to that end, here are three ways Canada’s public and private sectors can answer the call.

First, we must update our 2017 free-trade agreement. Our two countries had committed to doing so prior to the invasion and those efforts must now be given greater priority. We should focus, in particular, on expanding the agreement to cover investment and trade in services as Ukraine’s services sector has proven especially resilient.

In recommending this, we know Ukrainian officials are seized with the tragically urgent situation at home. Canada should therefore look to areas where it can act unilaterally. That is why the Business Council of Canada supports the removal of tariffs on goods from Ukraine and urges the removal of other unnecessary barriers to trade.

The reopening of our embassy in Kyiv is an important development given that negotiating in person is always more efficient, effective and conducive to reaching an agreement. The gradual restoring of greater access to our trade commissioner service will also help Ukrainian businesses connect with potential Canadian customers.

A second way we can help support and sustain Ukraine’s economy is by looking for opportunities to work with Ukraine’s agricultural sector. Ukraine and Canada are among the world’s Top 5 wheat exporters. Notwithstanding the war, Ukrainian farmers have planted crops in 70 per cent of the country’s arable land.

Given the Russian offensive in eastern regions of the country, a looming challenge to the Ukrainian economy may be a shortage of agri-food processing and exporting capacity for the resulting fall harvest. Here, Canadian food processors, equipment manufacturers and others in the agri-food sector may be able to help.

During his recent visit to Ukraine, Prime Minister Justin Trudeau pledged that the government would help Ukraine find ways to export grain that it has in storage and is ready to ship. Here, again, Canadian businesses, those in the transportation and logistics sectors, may be able to offer some assistance.

Finally, a third area where we should seek to expand bilateral business ties is the energy sector. Russia’s invasion has had a seismic effect on global energy markets, particularly in terms of oil and gas. Both Ukraine and Canada have called for the acceleration of the energy transition to renewable and low-emission resources.

In this, we must deal with both geopolitical and geological realities. Canadian companies have been working for years with Ukrainian partner agencies to help reduce reliance on Russian resources, including uranium. This work continues even now, and it has never been more important to Ukraine or to the rest of Europe.

Russian forces have damaged – and in some cases destroyed – vital energy infrastructure in Ukraine. Hence their greatest need may be for Canadian engineering and construction companies to help with the rebuilding and recovery effort both now and, as Ms. Kovaliv asserts proudly, “after the victory.”

All of us look forward to the day when Ukraine’s sovereignty and territorial integrity have been restored, and when circumstances allow business leaders to travel to Kyiv and meet with their Ukrainian counterparts. In the interim, the best way for Canada to help Ukraine – outside of military support – is to support their economy.

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