Experts say China’s economy is in decline. here’s why

0

By Julia Horowitz, CNN Business

It is difficult for American companies to operate in China. But the latest data on the country’s economy underscores why, for many companies, it’s still worth it.

What is going on ? China’s economic output rose 7.9 percent in the April-June quarter from the same period a year ago, China’s National Bureau of Statistics said Thursday.

This growth rate was significantly slower than China’s 18.3% year-on-year increase in the first quarter. But that period was spurred by comparisons to the depths of the country’s Covid-19 lockdowns in 2020 – and no one expected growth of this magnitude to continue.

“Overall, business in China remained strong in [the second quarter]said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note to clients.

There are signs of weakness. Retail sales growth slowed to 12.1% in June from 12.4% in May, data showed Thursday. This is the slowest growth rate this year.

“[The] the data continues to point to an uneven recovery,” said Yue Su, senior economist for The Economist Intelligence Unit.

But overall, growth of 7.9% as the recovery solidifies is remarkable and keeps China on track to easily exceed its annual growth target of more than 6%.

The statistics are a reminder of why US companies and other multinationals are determined to continue doing business in China despite unpredictable regulations, market access issues and intellectual property protection issues.

In its earnings call earlier this month, Levi Strauss said revenue in China in the second quarter was now 3% higher than the same period in 2019.

“As one of our biggest growth opportunities, we remain focused on maintaining this momentum,” CEO Chip Bergh told analysts.

PepsiCo CEO Ramon Laguarta hailed the strength of the company’s business in China during a call with analysts this week, pointing to the strong economic recovery from the Covid crisis.

Tensions between Washington and Beijing and human rights concerns have recently made doing business in China even more difficult for Western companies.

Remember: Earlier this year companies such as H&M, Nike, Adidas and Burberry were boycotted due to past stances they have taken against the alleged use of forced labor to produce cotton in the region. western Xinjiang in China.

But for many, China is simply too big an opportunity to miss, given the size of its consumer base and its continued pace of growth.

Airlines are making money again

US airlines have just reported another round of quarterly losses. This could very well be their last.

Latest: Delta Air Lines reported on Wednesday that it was profitable in June and expects to be in the black for the rest of this year, reports my CNN Business colleague Chris Isidore. United expects to be profitable from this month and continues its expansion plans with its biggest ever jet order.

“The momentum continues as we exited June with an accelerating demand environment,” Delta CEO Ed Bastian told analysts this week.

That doesn’t mean the industry’s problems are over. Delta said despite its successful June, revenue for the quarter was about half of what it was during the same period in 2019.

And while leisure travel is actually up from pre-pandemic levels, higher-paying business passengers remain in short supply. Delta said domestic business travel in June was about 40% of its level two years earlier. International travel is also still muted.

Executives are optimistic that these types of trips will resume after Labor Day, but the pace of the recovery remains an open question.

Investor Outlook: Despite optimism, airline stocks are still lagging. Shares of Delta are up 1% this year, compared to 16.5% for the S&P 500. Shares of United are up 11%.

But analysts are optimistic. Of 140 ratings assigned to the eight largest US airline stocks, more than half are “buy” or “strong buy” recommendations. In only 18 cases are analysts urging investors to sell.

There could be a digital euro by the middle of the decade

The European Central Bank continues its push to create a digital version of the euro as cash use declines and China ramps up testing of its own e-yuan.

The central bank announced a two-year investigation on Wednesday that will examine “key questions regarding the design and delivery” of a digital euro and analyze the potential impact on the market. A final decision on whether to roll out a digital euro will come later.

Details, details: a digital euro would not replace cash, but would work in much the same way. Instead of paying for goods or services with banknotes, Europeans could use a form of electronic money issued by the European Central Bank or national central banks to a digital wallet.

The announcement puts Europe on track to potentially roll out a digital currency in 2026. It’s an ambitious timeline, but the ECB is clearly concerned about the consequences of waiting too long to act.

In a speech last month, Francois Villeroy de Galhau, governor of France’s central bank, said central bank money could be shelved as cash use declines and new coins and emerging digital tokens. Europe started looking more seriously at a digital euro after Facebook unveiled plans to create a digital currency in 2019.

Villeroy also highlighted China’s progress in launching a digital yuan, which is already available in a number of Chinese cities.

“The risk is clearly that Europe will lose momentum not only in its desire to strengthen the international role of the euro, but even in its preservation,” he said. “The challenge here is also a geopolitical concern.”

Following

BNY Mellon, Morgan Stanley, Truist, US Bancorp and UnitedHealth release results before US markets open. Alcoa and American Outdoor Brands follow after the close.

Also today: US initial jobless claims for last week’s release at 8:30 a.m. ET. Industrial production data for June follows at 9:15 a.m. ET.

Additionally, Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee at 9:30 a.m. ET.

Coming tomorrow: the latest US retail sales data.

The-CNN-Wire
™ & © 2021 Cable News Network, Inc., a WarnerMedia company. All rights reserved.

Share.

Comments are closed.