Daily Brief: After An Explosive Start, China's Economy Is Starting To Lose Some Ground

Daily Brief: After An Explosive Start, China's Economy Is Starting To Lose Some Ground

about 2 years ago3 mins

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Data out on Monday showed China’s economic growth slowed down last quarter, as the country gets a little too complacent after a fleet-footed start.

What does this mean?

China was the first major economy to bounce back after the pandemic broke out, and one of the few that actually managed to grow back in 2020. But the country hasn’t managed to keep the pace up for a couple reasons. For starters, retail sales grew at their slowest in over a year last month, after a fresh bout of lockdowns put a stop to shoppers’ spending. And for another, investments in property – an industry estimated to make up more than 20% of its whole economy – fell nearly 8% last quarter, probably because of the enduring effects of last year’s government crackdown. All told, China’s economy grew just 4% last quarter compared to the same time in 2020 – well below the 6.5% of the year before.

China GDP

Why should I care?

The bigger picture: China’s shaking things up.

That kicked China’s central bank into action: it announced on Monday that it had cut the country’s interest rate for the first time in almost two years, slashing the cost of borrowing and encouraging shoppers to get out and spend. This, when most major economies are thinking about raising rates to keep inflation in check. But that’s the least of China’s problems right now: consumer prices in the country rose by a lower-than-expected 1.5% last month compared to the same time the year before – much less than America’s 7%.

Rate cut

Zooming out: Goldman’s got reservations.

China might be right to step in, especially since Goldman Sachs thinks Omicron – whose transmissibility arguably makes its spread more of a “when” than an “if” – could drag on the country’s economy even more. In fact, the investment bank cut its 2022 forecast for China’s growth from 4.8% to 4.3% last week.

Keep reading for our next story...

GlaxoSmithKline Rejected A $68 Billion Bid From Unilever

GSK image

GlaxoSmithKline (GSK) rejected a bid from Unilever to buy its consumer health business, after a measly $68 billion offer left a sour taste in the pharma giant’s mouth.

What does this mean?

GSK announced plans last year to list its consumer health business – which makes household products like Sensodyne and Panadol – on the stock market, in hopes the cash it raises will reinvigorate its flailing pharma businesses. But it looks like Unilever thinks GSK might be convinced to sell the segment instead, with the consumer goods giant reportedly putting in a bid of $68 billion last month. That’s its third offer, but this one fell on deaf ears too: GSK reckons Unilever is undervaluing the business, and plans to plow ahead with a mid-year listing as intended.

Consumer health sales

Why should I care?

For markets: Analysts say stop.

There might still be hope for the deal: Unilever said on Monday that it plans to double down on its health and hygiene businesses, which suggests it might be prepared to up its bid. In fact, the consumer staples giant has reportedly already discussed raising more cash to sweeten the deal. But analysts aren’t so sure that’s a good idea, in part because the high price tag makes it unlikely the company will actually generate a meaningful return. You don’t need to tell investors twice: they sent Unilever’s shares down 6% on Monday.

Unilever stock

For you personally: Those investors might be overlooking something.

Even if you don’t buy into Unilever’s plan, you might still want to buy into Unilever itself: the consumer staples company – which sells everyday essentials – is uniquely able to push rising costs onto its customers without losing them to competitors. That’s particularly appealing in these high-inflation times, and could be why an index that tracks some of the world’s biggest consumer staples has been outperforming the US stock market since the start of the year.

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