Daily Brief: China’s Slowing Recovery Isn’t Top Of The Class Anymore

Daily Brief: China’s Slowing Recovery Isn’t Top Of The Class Anymore

over 2 years ago3 mins

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Data out on Monday showed that China’s economy grew at its slowest pace in a year last quarter, as last year’s teacher’s pet suddenly falls out of favor.

What does this mean?

China might’ve outperformed the rest of the world last year, but this year has brought a whole host of challenges for its economy. Energy shortages, for one, have led to surging prices and power rationing, which has pushed factories to cut production and led to a drop in manufacturing activity. The government’s much-discussed crackdown on the real estate market, meanwhile, has really slowed the property sector down – no small thing considering property-related activities make up nearly a third of the Chinese economy.

China industrial production

All that might be why the country’s economy grew just 4.9% last quarter compared to last year – well below the 7.9% of the quarter before. Investment banks, for their part, saw it coming: data out last week showed that 10 of the 13 major banks have been cutting their full-year growth forecasts for China since August.

China GDP

Why should I care?

Zooming in: Don’t expect a helping hand.

Things aren’t all bad: China’s exports grew 28% last month compared to the year before, while consumer spending grew by a better-than-expected 4.4%. The government might be holding out hope that this will be enough to keep its recovery on track for now, which could explain why it isn’t rushing to bring in any financial support programs.

The bigger picture: EMs break with tradition.

China’s fellow emerging markets (EMs) aren’t doing much better: Bank of America is forecasting that the group of them (excluding China) won’t grow as quickly as the US next year – the third year in a row that’s happened. This wasn’t the plan: EMs – which have a lot of scope to come on in leaps and bounds using advancements from around the world – traditionally grow faster and offer higher potential returns than more developed markets.

Keep reading for our next story...

Philips Reported Worse-Than-Expected Results

Philips image

Philips reported worse-than-expected earnings on Monday, so the healthcare tech giant really should think about cutting back on poisoning its customers.

What does this mean?

Philips sold off its domestic appliances business to focus on its healthcare products back in March, and, uh, things haven’t been going well: it made the monumental mistake for a healthcare company – any company, really – of exposing its customers to toxic effects via its ventilators. That’s led to a recall of its products that’s cost the company almost $600 million so far. And while the demand is still there for its (presumably less fatal) products, all-too-familiar shortages of components have left the company struggling to convert those orders into sales. All in all, Philips’ revenue fell by around 8% last quarter compared to the same time last year.

Why should I care?

For markets: Investors hold a grudge.

Those shortages aren’t going anywhere fast, and the whole “toxic ventilator” thing might not be either: there could be any number of lawsuits in the pipeline, which might be why Philips cut its sales outlook for the rest of the year. Investors – who had already sent its stock down more than 25% between April and this update – didn’t take it well: they sent its share price down another 3%.

Philips stock
Source: Google Finance

Zooming out: The doctor will Zoom you now.

Philips’ bedside manner could clearly do with some work, but at least it has telehealth in the meantime. And that’s not a bad market to fall back on: consulting firm McKinsey estimates that the US telehealth industry will grow from its 2019 revenue of $3 billion to as much as $250 billion. And Philips can thank an illness it didn’t cause for that one: McKinsey says the number of virtual doctors’ visits are up 38-fold since before the pandemic.

Telehealth
Source: McKinsey & Company
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