In this week's economic update, we are focusing on China's economic health, the longer-term challenges faced by their economy, and the impacts that has had on global economic performance and expectations. The performance of the Chinese economy has a significant impact on global growth and while still poised to be a top contributor to that growth, deepening concerns over its health are emerging.
We are also sharing a short video by David Chilton (The Wealthy Barber) on how cottages can become a contentious issue when it comes to beneficiaries and estate planning. He shares some great information as well as solid advice for navigating this difficult process.
Economic Update
The second half of the summer saw more subdued price action with both equity and bond markets showing a slight decline. Investors’ immediate attention is likely on takeaways from a major conference of global central bank leaders and third-quarter results from Canadian banks. We will unpack these developments and circle back with key insights in the weeks to come.
This week, we will be focusing on deepening concerns over China’s economic health.
China’s role in global growth
China, as the world’s second largest economy and populace, has a significant impact on global growth. Earlier this year, there was optimism that China’s post-pandemic reopening would bolster global growth, especially when other economies were bracing for deceleration due to rising interest rates. But reality unfolded differently. The initial rebound in manufacturing, exports, industrial, and consumer activity began to fade after the first quarter of the year and has since been uninspiring.
Longer-term issues facing Chinese economy
There are several longer-term issues facing China: demographics, geopolitical strains, policy uncertainty, and the retreat from globalization. Yet, we don’t view these as directly responsible for the present economic malaise. Instead, we would point to cyclical factors such as weak consumer demand and an export market affected by the global demand shift from goods to services.
Development and property sector changes squeezing revenues
A primary concern is the deteriorating property sector. In 2020, the government clamped down on the sector in an effort to reign in over-leverage, over-building, and inflated home prices. Since then, the housing market has faced significant headwinds. Revenues from home sales and pre-sales, the largest source of funding for Chinese property developers, have been shrinking. This has translated into financing challenges for some of the sector’s largest players like Evergrande (which recently filed for bankruptcy protection) and Country Garden (which failed to make payments on some of its bonds earlier this month).
Consumer hesitancy driving stagnation
These stresses have created hesitancy among Chinese homebuyers, with some worried that pre-paid homes will fail to materialize and others anticipating that prices will continue to fall. This backdrop helps to explain the more general reticence of Chinese consumers. The property sector makes up approximately two-thirds of their wealth and roughly a quarter of their country’s annual economic output. In other words, the primary asset for many households and one of China’s most important economic engines are stagnating. Concurrently, signs of weakness beyond the housing market are dampening consumer confidence more broadly.
Chinese policy changes may be underwhelming
Revitalizing China's growth will hinge on skillful policy interventions and the evolution of trade dynamics. The Chinese government has rolled out a host of small and largely incremental measures, and we anticipate more policy relaxations in the upcoming months. But any future intervention may underwhelm relative to the bolder action seen globally in recent years.
Context important for understanding the scale of growth
Despite prevailing pessimism, it’s important to put things into context. Forecasts place China’s growth just shy of 5% this year – a rate that still outpaces many developed nations. And it’s poised to be the top contributor to global growth in the next decade. As China charts a new path towards sustainable growth, relying less heavily on infrastructure and housing, it will run into its fair share of opportunities and challenges alike, not unlike today.
How a cottage can complicate estate planning
Cottages can play host to some family's most cherished memories - but it can also easily become a wedge that can drive family members apart. Smoothly transitioning ownership of cottages from one generation to the next is one of the most significant individual challenges in estate planning.
In this short overview, David Chilton (The Wealthy Barber) shares his insight and recommendation for what your family's first step in the process should be: communication.
Reminder - Summer Hours
A friendly reminder that Elinesky Schuett Private Wealth is recognizing summer work hours through to the end of this week, September 1st, 2023.
Please note that during this time, our offices will be closing at 4pm on Friday. Beginning September 4th, 2023, we will be returning to our standard closing time of 4:30pm on Fridays.
Thank you for your understanding.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.
