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IMF warns on China’s property market worsening

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Chinese flags for sale on Nanjing East Road in Shanghai, China, on Wednesday, Oct. 2, 2024.

Qilai Shen | Bloomberg | Getty Images

The International Monetary Fund (IMF) warned of a possible worsening of the state of China’s property market as it trimmed its growth expectations for the world’s second-largest economy.

In a report published Tuesday, the IMF trimmed its forecast for growth in China for this year to 4.8%, 0.2 percentage points lower than in its July projection. In 2025, growth is expected to come in at 4.5%, according to the IMF.

The Washington, D.C.-based organization also highlighted that China’s property sector contracting by more than expected is one of many downside risks for the global economic outlook.

“Conditions for the real estate market could worsen, with further price corrections taking place amid a contraction in sales and investment,” the report said.

Historical property crises in other countries like Japan (in the 1990s) and the U.S. (in 2008) show that unless the crisis in China is addressed, prices could correct further, the IMF’s World Economic Outlook noted. This in turn could send consumer confidence lower and reduce household consumption and domestic demand, the agency explained.

China's economic stimulus measures 'going in the right direction,' IMF chief economist says

China has announced the introduction of various measures aimed at boosting its fading economic growth in recent months. In September, the People’s Bank of China announced a slate of support such as reducing the amount of cash banks are required to have on hand.

Just a few days later, China’s top leaders said they were aiming to put a halt to the slump in the property sector, saying its decline needed to be stopped and a recovery needed to be encouraged. Major cities including Guangzhou and Shanghai also unveiled measures aiming to boost homebuyer sentiment.

China’s Minister of Finance then earlier this month hinted that the country had space to increase its debt and its deficit. Lan Fo’an signaled that more stimulus was on its way and policy changes around debt and the deficit could come soon. The Chinese housing ministry meanwhile announced that it was expanding its “whitelist” of real estate projects and speeding up bank lending for those unfinished developments.

Some measures from the Chinese authorities have already been included in the IMF’s latest projections, Pierre-Olivier Gourinchas, chief economist at the IMF told CNBC’S Karen Tso on Tuesday.

“They are certainly going in the right direction, not enough to move the needle from the 4.8% we’re projecting for this year and 4.5% for next year,” he said, noting that the more recent measures were still being assessed and have not been incorporated into the agency’s projections so far.

There is a backdrop of economic uncertainty given elections this year, says IMF's Adrian

“They [the more recent support measures] could provide some upside risk in terms of output, but this is the context in which the third quarter of Chinese economic activity has disappointed on the downside, so we have this tension between, on the one hand, the economy is not doing as well, and then there is a need for support. Is there going to be enough support? We don’t know yet,” Gourinchas said.

China last week reported third-quarter gross domestic product growth of 4.6%, slightly higher than the 4.5% that economists polled by Reuters had been expecting.

In its report, the IMF also noted potential risks to the economic measures.

“Government stimulus to counter weakness in domestic demand would place further strain on public finances. Subsidies in certain sectors, if targeted to boost exports, could exacerbate trade tensions with China’s trading partners,” the agency said.

The energy markets are 'schizophrenic' right now: S&P Global vice chairman

Economics

California’s carbon market reaches an inflection point

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IT WAS THE equivalent of a warning siren. The results of California’s latest auction of carbon allowances, released on May 29th, showed that prices had hit the floor. Each quarter companies shell out for credits that cover their greenhouse-gas emissions. Demand is weak, and lower revenues from the auction are bad news for lawmakers who are already trying to plug a $12bn budget deficit. The poor showing is also a signal that firms are not confident that California’s cap-and-trade programme, the fourth-largest carbon market in the world, will continue to exist.

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Economics

Can AI predict Supreme Court rulings?

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This June may be the most harried for the Supreme Court’s justices in some time. On top of 30-odd rulings due by Independence Day, the court faces a steady stream of emergency pleas. Over 16 years, George W. Bush and Barack Obama filed a total of eight emergency applications in the Supreme Court (SCOTUS). In the past 20 weeks, as many of his executive orders have been blocked by lower courts, Donald Trump has filed 18.

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Economics

Companies already raise prices or plan to, blaming tariffs, data shows

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Johnson & Johnson manufacturing facility in Wilson, North Carolina.

Courtesy: Johnson & Johnson

Data from the New York Federal Reserve shows a majority of companies have passed along at least some of President Donald Trump’s tariffs onto customers, the latest in a growing body of evidence indicating the policy change is likely to stretch consumers’ wallets.

In May, about 77% of service firms that saw increased costs due to higher U.S. tariffs tariffs passed through at least at least some of the rise to clients, according to a survey conducted by the New York Fed that was released Wednesday. Around 75% of manufacturers surveyed said the same.

In fact, more than 30% of manufacturers and roughly 45% of service firms passed through all of the higher cost to their customers, according to the New York Fed’s statics.

Price hikes happened quickly after Trump slapped steep levies on trading partners, whether large or small. More than 35% of manufacturers and nearly 40% of service firms raised prices within a week of seeing tariff-related cost increases, according to the survey.

Trump announced in early April that he would impose “reciprocal” tariffs on more than 180 countries and territories, sending the stock market into a tailspin. But Trump soon rolled back or paused those levies for three months, unleashing the equity market to claw back most of its initial losses.

July deadline

Companies and investors alike are now looking to a July 9 deadline for the return of those suspended tariffs, coping in the meantime with continued confusion regarding to trade policy. The U.S. has already announced one trade deal with the United Kingdom, and Deputy Treasury Secretary Michael Faulkender said this week that the Trump administration is “close to the finish line” on some other agreements.

The New York Fed’s survey is the latest in a salvo of data releases and anecdotal reports that have shown companies’ willingness to pass down cost increases despite pressure from Trump not to do so.

Nearly nine out of 10 of the 300 CEOs surveyed in May said they have raised prices or planned to soon, according to data released last week by Chief Executive Group and AlixPartners. About seven out of 10 chief executives surveyed in May said they plan to hike prices by at least 2.5%.

Corporate executives have been careful in how they speak about the impact of Trump’s policies on their business, especially when it comes to trade, to avoid getting caught in the president’s crosshairs. Last month, for example, Trump warned Walmart in a social media post that the retailer should “eat the tariffs” and that he would “be watching.”

Consequently, survey data and anonymous commentary offer insights into how American business leaders are discussing the tariffs behind closed doors.

“The administration’s tariffs alone have created supply chain disruptions rivaling that of Covid-19,” one respondent said in the Institute for Supply Management’s manufacturing survey published Monday.

Another respondent said “chaos does not bode well for anyone, especially when it impacts pricing.” While another pointed to the agreement between the U.S. and China to temporarily slash tariffs, they said the central question is what the landscape will look like in a few months.

‘Hugely distracting’

“We are doing extensive work to make contingency plans, which is hugely distracting from strategic work,” this respondent said. “It is also very hard to know what plans we should actually implement.”

Responses to the ISM service sector survey released Wednesday revealed a similar focus on the uncertainty stemming from controversial tariffs.

“Tariffs remain a challenge, as it is not clear what duties apply,” one respondent wrote. “The best plan is still to delay decisions to purchase where possible.”

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