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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Company insolvencies jump 40% in England and Wales; China’s growth slumps – as it happened

China Economy United States Europe GDP Italy
An empty shop in the town of Maidenhead, where more businesses have cloased down since the pandemic.
An empty shop in the town of Maidenhead, where more businesses have cloased down since the pandemic. Photograph: Maureen McLean/REX/Shutterstock

Closing summary

Stock markets are ending the week on a positive note, as investors regain their nerve despite the latest signs of economic slowdown.

In London, the FTSE 100 is now 112 points higher, or 1.6% up, at 7153, led by engineering firm Rolls-Royce (+5.5%), with airline group IAG (+4.4%) close behind.

The pound is clawing back from two-year lows, at $1.184, while the euro is back about parity with the dollar at $1.006.

Fiona Cincotta, Senior Financial Markets Analyst, at City Index, says:

Yesterday saw a disappointing start to the earnings season yesterday after JPMorgan and Morgan Stanley saw net income fall around 30%, missing forecasts. The fact that the banks are setting aside large sums for potential bad loans suggests that they are concerned about a possible recession.

Helping stocks higher today have been less hawkish comments from known Federal Reserve hawkish, which have helped the market pare back aggressive Fed hike bets.

With hawks Christopher Waller and James Bullard both supporting hiking rates by 75 basis points, not 100 bps that the market priced in after Wednesday’s red hot inflation.

Here are today’s main stories:

Have a lovely weekend. GW

US consumer sentiment has inched up this month, but remains near its lowest in decades.

The University of Michigan’s index of consumer morale rose to 51.1 this month, up from 50 in June, and better than hoped.

But as Surveys of Consumers Director Joanne Hsu explains, consumer sentiment was relatively unchanged, remaining near all-time lows.

Current assessments of personal finances continued to deteriorate, reaching its lowest point since 2011.

Buying conditions for durables adjusted upwards, owing both to consumers who cited easing supply constraints and those who believed that one should buy now to avoid future price increases, which would exacerbate inflation going forward.

Virgin Media O2 explores bid for TalkTalk

Virgin Media O2 has explored making a multi-billion pound offer for broadband and telecoms company TalkTalk in its latest move to build scale to create a new “national champion” to challenge BT and Sky.

The pay-TV, broadband and mobile giant, which is jointly owned by Spain’s Telefonica and John Malone’s Liberty Global, is understood to have held exploratory talks with the Salford-based TalkTalk.

TalkTalk, founded and chaired by Sir Charles Dunstone, has been in play since April when it emerged that the company had received a number of tentative approaches about a sale.

Companies including Vodafone and Sky have previously been linked with potential offers for the business, which was taken private in a £1.8bn deal with Martin Hughes’ Toscafund last year.

It is understood that TalkTalk and its bankers Lazard believe the business is now worth as much as £3bn. Virgin Media O2, which is working with LionTree, is understood to have explored the possibility of making an offer for TalkTalk but has not tabled a formal bid.

If a deal was to go ahead it would be the first major move by chief executive Lutz Schuler since the £31bn Virgin Media O2 joint venture was formed two years ago. Virgin Media O2’s potential interest in a deal with TalkTalk was first reported by the Telegraph.

The UK is poised for a potential wave of consolidation in the telecoms sector with companies such as Vodafone arguing that regulators need to relax their view on competition concerns to bring them more into line with other markets such as the US and parts of Europe.

In February, telecoms regulator Ofcom formally dropped its long held position that a merger between any of the UK’s big four mobile operators should be blocked at all costs.

Under former chief executive Sharon White, Ofcom was an outspoken opponent of Three UK’s attempted £10.25bn takeover of O2, which was blocked by competition regulators six years ago.

Liberty Global, Virgin Media O2 and TalkTalk declined to comment.

Shares in BT have dropped 7.5%, to the bottom of the FTSE 100 leaderboard, since news of Virgin Media O2’s interest broke.

Wall Street is bouncing back from its wobble yesterday.

The Dow Jones industrial average has jumped by 1.2%, or 368 points, in early trading to 30,999 points.

Almost every sector is up, led by energy and financials.

Fears that the US central bank could lift interest rates by a whole percentage point - for the first time in decades - may be easing of, after Wednesday’s surge in inflation to 9.1%.

The decline in US industrial production and manufacturing output in June is partly due to zero-covid shutdowns in China, suspects Michael Pearce, senior US economist at Capital Economics.

Those lockdowns temporarily paralysed global supply chains again, adding to weaker demand for US goods as economic demand slows.

Pearce told clients:

What had been surprising is how well activity in the factory sector had held up in recent months, but the downward revisions to the May data and further decline in June now match the downbeat message from the survey data that manufacturing activity has slowed, and mirrors the broader slowdown in global manufacturing output.

With activity in China rebounding, however, and inventory across most of the economy still looking lean, US manufacturing output growth should slow rather than collapse.

US manufacturing output has weakened, indicating that the factory sector eased off last month.

Total industrial production dipped 0.2% percent in June, new figures show, while manufacturing output declined 0.5% for a second consecutive month.

Both readings are weaker than expected, taking the shine off the stronger-than-forecast retail sales figures earlier.

The European Commission is proposing a ban on the import of Russian gold, as part of an adjustment to its sanctions regime following the Ukraine invasion.

A package agreed by the EC today would introduce a new import ban on Russian gold, aligning EU sanctions with those of its G7 partners..

The package also reiterates that EU sanctions do not target in any way the trade in agricultural products between third countries and Russia, in an attempt to protect food security around the world (already threatened by the blockage on Ukrainian grain).

The EC is also proposing extending the current EU sanctions for six months, until the next review at the end of January 2023.

The proposal will now be discussed by EU member states.

Rail passengers across England and Wales have been urged to only travel if necessary next week, with extreme temperatures forcing blanket speed restrictions across much of the network.

Network Rail said the impact on train services would vary by region, but that journeys would take significantly longer. It said there was a high likelihood of cancellations, delays and last-minute alterations to services on Monday and Tuesday.

Long-distance train journeys, such as London to York, could take four hours instead of two, with trains forced to travel below 60mph for safety.

Vulnerable passengers and those with health conditions should avoid travelling, Network Rail said, while passengers who choose to travel should check if their train is running and ensure they are prepared for the heat with plenty of water to drink.

Rail passengers in Scotland should also check their journeys before travelling and take sensible precautions.

Green wheelie bin.CY9XB5 Green wheelie bin.

Refuse collection workers in the West Midlands are to strike on the opening week of the Commonwealth Games, PA Media reports.

Members of the GMB union will take five days of action - on July 28, when the Games open in Birmingham, July 29 and August 4, 5 and 8.

The union said private contractor Serco, which runs refuse collection services across Sandwell, had offered a real terms pay cut to workers.

Justine Jones, GMB Midlands organiser, said:

“Strike action is a last resort, but Serco top brass have forced the hand of hundreds of hard-working local refuse workers.

“Our members have asked for nothing more than a fair pay rise, after keeping communities here in Sandwell clean and safe throughout the pandemic.

“The eyes of the world will be on our area during the Commonwealth Games, it’s a shame that Serco have put the bottom line before their own workforce and community in this way.

“This is a big distraction from the Games and we hope Serco see sense and urgently bring a pay offer to the table that reflects the hard work and dedication of our members.”

Here’s some snap analysis of the US retail sales report:

Updated

US retail spending holds up amid soaring inflation

Just in: US retail sales jumped by more than expected last month, as rising inflation drove up prices in the shops and online.

Retail sales rose 1.0% in June, ahead of forecasts of a 0.9% rise, and were 8.4% higher than a year before.

That follows a 0.1% monthly drop in May (which has been revised up from -0.3%)

The figures aren’t adjusted for inflation, and show gasoline stations spending was 49% higher than in June 2021, while food services and drinking places grew sales by 13.4%.

It suggests that consumers didn’t cut spending heavily in June, despite a slump in confidence last month as inflation hit a 40-year high of 9.1%.

That may give the Federal Reserve the green light for another hefty interest rate rises later this month.

Updated

BlackRock's Fink: investment environment ‘not seen in decades’

The BlackRock logo is seen outside of its offices in New York January 18, 2012.

The head of investment group BlackRock has blamed the toughest investment environment in decades after profits tumbled by almost a third.

Net income at BlackRock fell 30% in the second quarter of 2022 to $1.12bn, a bigger fall than expected. Assets under management at the firm dropped by 11% to below $8.5trn.

Laurence D. Fink, Chairman and CEO, points out that it’s been a tough year:

“The first half of 2022 brought an investment environment that we have not seen in decades.

Investors are simultaneously navigating high inflation, rising rates and the worst start to the year for both stocks and bonds in half a century, with global equity and fixed income indexes down 20% and 10%, respectively.

“BlackRock generated net inflows of $90 billion in the second quarter demonstrating our ability, once again, to deliver industry-leading organic growth even in the most challenging of environments. Our connectivity with clients has never been stronger. Over the last twelve months, we’ve delivered over $460 billion of net inflows reflecting 5% organic base fee growth.

Market volatility has pushed some investors out of the market, and also pushed down the value of assets which managers charge their fees on.

Here’s some good analysis:

Updated

Mazars, the international audit, tax and advisory firm, reports that company insolvences across the UK are up 70% in the last year.

Rising interest rates and slowing consumer spending are hitting businesses’ bottom lines, it says, just as costs rise sharply.

This squeeze has pushed UK company insolvencies up to 19,191 in the year to 30th June, from 11,261 the previous 12 months -- which chimes with the Insolvency Service’s figures.

Construction firms have been particularly badly hit, with insolvencies up 112% in the past year to 3,611 as rising costs for materials and energy made some building projects increasingly unprofitable.

Businesses are fighting a losing battle against rising costs – with the added worry of falling consumer spending, warned Rebecca Dacre, partner at Mazars.

With energy prices rising, businesses are being forced to increase their prices despite consumers feeling the pinch. Many businesses that were already struggling are now facing a real crisis.

Price pressures are becoming more embedded as interest rates rise and the economy contracts. The latest insolvency figures will cast greater uncertainty over businesses that are already facing a grim outlook.

“The financial support that the Government provided during the pandemic has now been withdrawn, and the UK economy appears to be seeing the post-Covid wave of insolvencies that were feared. Sadly, the dismal outlook means more pain for businesses is likely.”

Company insolvencies jump 40% in England and Wales

The number of company insolvencies in England and Wales has risen by 40% year-on-year, as more firms are forced under by tough economic conditions.

There were 1,691 company insolvencies in June, the Insolvency Service reports, up from 1,207 in June 2021. That’s also 15% more than before the pandemic, although lower than in May.

Most of June’s insolvencies (1,456) were Creditors’ Voluntary Liquidations (CVLs), in which a firm takes the decision to be liquidated because it can’t pay its bills.

But there were also 3.6 times as many compulsory liquidations in June 2022 as in June 2021, and the number of administrations was 2.3 times higher than a year ago.

England and Wales insolvency statistics

John Bell, director of licensed Insolvency Practitioners Clarke Bell, warned that the race to replace Boris Johnson will unsettle businesses:

The economy is in a state of flux as the Government goes into freefall and clamours to find a new leader and Prime Minister.

The uncertainty is set to stall the economy and unsettle UK plc.

Bell adds that companies have been hit by the pandemic, the economic uncertainty caused by Brexit, along with other current events such as the Ukraine war

Due to the heavy impact and persistence of these problems, it’s no surprise that many directors of struggling companies are facing compulsory liquidation. However, it is the worst type of liquidation, stripping directors of any control and often ending in personal consequences for directors.

As such, it should be avoided at all costs. My advice to struggling businesses is to confront your financial issues before liquidation is forced upon you. There are many methods and steps to take to close down a company before you reach compulsory liquidation stage.”

Nicky Fisher, Vice President of insolvency and restructuring trade body R3, says inflation is driving up company costs and adding to the strain on bosses:

Not only are directors facing immediate strain to deal with this inflationary pressure, but they will also be looking at re-evaluating investment decisions and wider business strategies in the medium-term. This is likely to act as a further drag on the economy in the months ahead.

“At the same time, consumer confidence has hit its lowest point since the start of the pandemic, bringing down consumer spending, which could mean that sectors such as travel, retail and hospitality could particularly struggle as these are the things people usually cut first.

China’s stock market has posted its biggest drop in eight weeks, as calls for a mortgage strike added to anxiety after the weak GDP report.

The CSI 300 closed down 1.7%, its biggest drop since 24th May.

Property developers and financial firms were hit by a growing number of homebuyers’ threats to stop mortgage payments on unfinished apartments.

Analysts have warned that growing protests over stalled construction projects could threaten any tentative recovery in China’s capital-starved property sector and leave banks with hefty writedowns on bad debts.

The 2.6% drop in China’s GDP in the last quarter also weighed on sentiment.

For the week, the CSI 300 Index lost 4.1%, the biggest drop since April 22, while the Hang Seng Index saw its biggest slump since March 2020, down 6.6%.

Aston Martin Lagonda cars are seen parked outside the company’s new factory at St Athan, Wales.

British luxury carmaker Aston Martin has turned to Saudi Arabia’s sovereign wealth fund to help fix its financial woes, sending its shares surging 20% back from record lows.

Aston Martin Lagonda has received a large investment from Saudi Arabia as part of raising £650m of capital to pay down the luxury sportscar maker’s large debts, my colleague Jasper Jolly reports.

The British manufacturer has not been able to generate cash needed to invest in new models and electric technology, and has also struggled with delays to its Valkyrie hypercar and its newest DBX 707 sports utility vehicle.

The Saudi Public Investment Fund (PIF), led by the controversial crown prince, Mohammed bin Salman, will buy shares worth £78m, and will take part in a £575m rights issue that will leave it as the second-largest investor after Yew Tree, the consortium led by the billionaire fashion mogul Lawrence Stroll that took over Aston Martin in early 2020 as it approached bankruptcy.

Here’s the full story:

Soaring energy costs have left the eurozone with another trade deficit in May.

Statistics body Eurostat reports that imports into the eurozone jumped by 52% in May compared with a year ago, to €274.8bn. That outpaced exports, which rose almost 29% to €248.5bn.

In the first five months of the year, imports from Norway have surged 147%, mainly due to higher expense on oil and gas goods.

The United States saw the biggest increase in exports, up 29.6%, lifted by chemicals, machinery and vehicles.

Updated

The Bloomberg Industrial metals index has slumped to a 17-month low, reports Ole Hansen, head of commodity strategy at Saxo:

The sell-off is led by copper which has suffered its worst weekly rout since the early stages of the pandemic in 2020 (see earlier post).

Hansen explains:

Since hitting a record high in March the price High Grade copper (HGc1) has slumped by 37% to levels last seen in late 2020. From a technical perspective, the price has reached support at $3.14, the 61.8% retracement of the 2020 to 2022 rally, and further weakness may trigger an additional selling response from traders

Rio Tinto Group, meanwhile, has issued a grim warning about the prospects for the global economy, pointing to war, inflation and tighter monetary policy, as well as coronavirus lockdowns in China.

Updated

Rio Tinto warns economic outlook is weakening

Ore being hauled from the Kennecott’s Bingham Canyon Copper Mine in Herriman, Utah.
Ore being hauled from the Kennecott’s Bingham Canyon Copper Mine in Herriman, Utah. Photograph: Rick Bowmer/AP

Mining giant Rio Tinto has warned that the economic outlook is weakening due to the Russia-Ukraine war, tighter monetary policy to curb rising inflation, and targeted COVID-19 restrictions in China.

In its latest production results, Rio Tinto flagged a range of headwinds, including shortages of workers, muted demand from Chinese manufacturers, falling commodity prices and the threat of recession.

Rio Tinto says:

Prices for our commodities decreased in the quarter, amidst growing recession fears and a decline in consumer confidence.

Trade disruptions, food protectionism and the global focus on securing energy supplies continue to put pressure on supply chains, which will need to be significantly eased before inflationary pressures subside.

On China, the company warns that Covid-19 restrictions are hampering activity:

China’s industrial activity troughed in May amid COVID-lockdowns. June recovered but uncertainties remain given the potential for ongoing outbreaks. Economic stability is a focus, but headwinds are considerable from restricted labour and goods movement and a slowing external environment.

Rio Tinto says there is an “increasing risk” that a rapid hike in US interest rates will subdue demand.

Conditions are worsening in Europe, it adds:

The Eurozone industrial sector has been impacted by supply bottlenecks, higher inputs costs and weakening consumer sentiment, even though the services sector has been positive. Energy security will be a key priority for the region, with measures taken to avert a potential shortfall in energy.

Updated

Rail, Maritime and Transport union (RMT) general secretary Mick Lynch says the public is “right behind” the latest wave of planned industrial walkouts.

Asked if public support could “evaporate” over planned strikes on July 27, August 18 and 20, he told BBC Radio 4’s Today programme:

“The public seem to be right behind us, many of the public are in the same position as our members.

“They have not had a pay rise, they feel they are being exploited by the employers and they feel that the Government is pushing down on wages in order to protect profits in this country, which are still at higher levels, and dividends are still being paid out.

“Corporate Britain is making plenty of money on the back of low-paid workers and our members feature in that, and we need to get a square deal for them so that they can face the cost-of-living challenge which is best addressed through their pay packets.”

Updated

Copper drops below $7,000 for first time since 2020 as selloff deepens

Copper prices are heading for the worst weekly loss since March 2020 on Friday, as fears of a global recesssion hit the commodities market.

Three-month copper on the London Metal Exchange has dropped over 10% so far this week.

It has fallen below $7,000 per tonne this morning for the first time since November 2020 (when the first successful Covid-19 vaccine trials triggered a global rally).

Copper prices in Shanghai have closed at their lowest since November 2020 too, weakening as China’s economy shrank by more than forecast in April-June (down 2.6% quarter-on-quarter).

‘Doctor Copper’, as it is known, is a good indicator of the health of the global economy, so this is a concern.

Prices have fallen around 35% in the last four months; it surged early in the Ukraine war as traders anticipated supply shortages, before recession fears pulled prices down.

Ongoing Covid-19 lockdowns in China will limit factory output, and thus demand for commodities such as metals.

The stronger US dollar has also pushed down commodity prices (which are priced in dollars), while higher interest rates in the US and Europe could also dent demand.

Energy rationing in Europe this winter could aldo hammer demand for metals, if Russia were to keep the Nord Stream 1 gas pipeline closed once its summer maintenance finishes.

Fevertree shares slide on profit warning

Things have turned sour in the swanky tonic market.

Fevertree, the premium carbonated mixer maker, has cut its profit forecasts and warned that logistic problems and rising costs have “significantly worsened in recent months”, including shortages of workers and glass bottles.

The news sent Fevertree’s shares tumbling by a quarter this morning to 900p.

Shares are down almost two-thirds so far this year, as inflationary pressures have pushed up costs and squeezed consumer spending.

Fever-Tree’s share price
Fever-Tree’s share price since it floated in 2014 Photograph: Refinitv

Fevertree was a stock market darling up until 2018, as its high-end tonics proved a hit with drinkers.

The company insists that consumer demand remains strong, but now expects profits of £37.5m-£45m, down from an earlier forecast of £63m-£66m, adding:

  • Labour shortages have impacted our US East Coast production ramp up, resulting in greater UK production required to fulfil against the strong demand in the US, and with it, more exposure to sea freight with rates increasing by up to 50% since the start of the year on key routes

  • Glass availability has become severely restricted, which has limited the opportunity to deliver upside to revenue despite strong demand

  • Further, industry-wide cost pressures have increased, most notably glass costs, where we will see double digit increases for H2 alongside continued logistics cost increases and disruption

Updated

Burberry are the top faller on the FTSE 100 share index, down 4%.

Overall, the market is recovering around half of its losses yesterday, with the blue-chip share index up 50 points at 7090.

European stocks are rallying too, with Germany’s DAX up 1.1%.

Burberry sales held back by China's lockdown

A Burberry story at a shopping mall in Beijing.
A Burberry story at a shopping mall in Beijing. Photograph: Tingshu Wang/Reuters

China’s lockdowns have hit sales growth at Burberry.

The luxury fashion company has reported that sales in mainland China plunged by 35% in the last quarter, when Covid-19 lockdowns forced stores to close. That pulled sales across the Asia Pacific down by 16%.

Declines in Mainland China were partially offset by strong performances in recovering markets such as Japan, though.

Sales outside Mainland China were up 16%, as countries reopened from the pandemic, meaning total sales grew 1%.

Burberry has also suffered from the drop in Chinese tourists visiting Europe, due to zero-Covid policies, although a pick-up in American visitors may help.

Sales in the Europe, Middle East, India and Africa region rose 47%, with local sales exceeding pre-pandemic levels.

Richard Hunter, Head of Markets at interactive investor, explains:

“Burberry’s trading progress has been hampered by another China crisis resulting from the country’s zero tolerance policy on Covid-19.

The lack of Asian tourists coming to Europe in particular has been a bugbear for some considerable time, and the latest lockdowns in the region have inevitably had an impact. Asia Pacific sales overall declined by 16%, with sales in Mainland China dropping by 35% following store closures and lockdowns which also affected Burberry’s digital hub.

Updated

Interestingly, ING suspect China’s downturn may have bottomed out.

They’ve revised up their target for China’s GDP growth rate for 2022 to 4.4% from 3.6% previously, on the

It is still slower than the government target of 5.5% for this year, which ING believes will be hard to achieve unless a lot of investment goes into construction work.

Iris Pang, ING’s chief economist for Greater China, suspects China’s recovery could have begun, despite the 2.6% tumble in April-June.

We have seen a recovery in retail sales at 3.1%YoY in June from -6.7%YoY in May, with car sales increasing by 13.9%YoY in June from -5.9%YoY in May, mainly because of subsidies for the consumption of new energy cars. We expect strong retail sales to continue as some local governments have not completed their subsidy programmes.

Fixed assets investment data are even more forward-looking. Infrastructure investments grew 6.1%YoY year-to-date amounting to CNY 27.1 trillion. Manufacturing investments took the lead by growing 10.4%YoY YTD.

The data suggests companies are optimistic about their buisness prospects. Infrastructure investments rose 7.1%YoY YTD, and we believe they will speed up further in the third quarter.

Industrial production rose 3.9%YoY in June from 0.7% in May. New energy cars, solar power batteries and telecommunication stations grew 111.2%YoY, 31.8%YoY and 19.8%YoY, respectively. We believe that subsidies for consumption on new energy cars is one of the factors for such fast growth in production.

Faster growth in industrial production will typically push up PPI inflation later. The government is trying to curb inflation so that it can avoid the high readings seen in the US and other economies.

China GDP data
China GDP data Photograph: ING

China’s economy faces a fog of uncertainty, warns Alvin Tan of Royal Bank of Canada:

China Q2 GDP growth at 0.4% y/y was lower than consensus expectations, but still better than the probable figure.

Growth for H1 2022 was just 2.5%, which suggests that the 5.5% target for the entire year is very unlikely to be reached. New build housing prices fell for a tenth consecutive month in June at 0.10% m/m, but the rate of decline is slowing.

Although the spring lockdown-driven downturn is now behind us, the path ahead for China’s economy is fogged by the uncertainties flowing from zero-Covid, the fragile property sector and the global growth slowdown.

China’s slowdown could prompt action by central bankers and Beijing’s government, says Stephen Innes of SPI Asset Management:

China data may look bad overall, but industrial output, retail sales, Fixed Asset Invement and jobless rates improved after a brief respite from the zero-covid policy in June.

China’s 5.5% 2022 GDP target now looks impossible to achieve, and we concur with the China experts forecasting 4% instead.

But we could easily read the big GDP miss as “bad news is good “as it should signal a call to action for both fiscal and monetary authorities.

Asia-Pacific stock markets are hovering around two-year lows, after China’s GDP report missed expectations.

China’s CSI 300 share index has dropped by 1.25% in late trading, while Hong Kong’s Hang Seng is down 2%, and Japan’s Topix is flat.

So far this year, new car registrations in the EU have shrunk by 14.0% compared with a year ago.

All of the region’s major markets have recorded double-digit drops, with Italy (-22.7%) worst hit, followed by France (-16.3%), Germany (-11.0%) and Spain (-10.7%).

EU car sales
EU car sales Photograph: ACEA

Europe car sales slump to worst June in decades on supply issues

European car sales have tumbled to their lowest since 1996, as automakers are hit by persistent supply chain snarls and record inflation.

In another sign of economic problems, new car sales in the EU fell by 15.4% in June to just 886,510 units, the European Automobile Manufacturers’ Association reports.

That’s the worst June in 25 years, and means new car registrations have fallen for 12 months in a row.

All four of the major European Union markets - Spain, Italy, Germany and France - reported a decline in car registrations

Germany posted the strongest decline (-18.1%), followed by Italy (-15.0%) and France (-14.2%). Spain on the other hand saw a more modest fall (-7.8%).

Figures earlier this month showed that the UK also posted its worst June car sales since 1996.

Updated

Introduction: China's economy shrank 2.6% in Q2, adding to slowdown fears

Citizens visit Guijie, a gourmet restaurant street in Beijing.
Citizens visit Guijie, a gourmet restaurant street in Beijing. Photograph: Xinhua/REX/Shutterstock

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Fears over the global economy have been sharpened by the news that China’s growth took a shunt in the last quarter, as Covid-19 outbreaks and restrictions hit the economy.

China’s economy shrank by 2.6% in the April-June quarter, much worse than expected, as the lockdowns imposed in major cities this year hamstrung the economy.

On an annual basis, China’s GDP grew just 0.4%, the slowest since the first wave of the pandemic in 2020, and shy of forecasts of 1.2% growth.

The slowdown comes after Shanghai was sealed off for two months as it battled a Covid-19 resurgence, tangling supply chains and forcing factories to halt operations.

It means Beijing is likely to miss its goal of 5.5% growth during 2022 -- probably by a wide margin -- another blow to a global economy hit by recession fears.

But it could also spur policymakers into fresh stimulus measures to shore up growth, as multiple cities are currently facing some form of restrictions as officials try to stamp out Covid infections.

As my colleague Martin Farrer writes, signs have been mounting of a slowdown:

This week’s figures showed that imports for the second quarter grew by just 0.1%, called “staggeringly” low by one economist considering that prices for key imported commodities such as oil and food have rocketed since April.

The statistics bureau also said on Friday that youth unemployment has risen to 19.3%, a trend accelerated by the full or partial lockdowns imposed in major centres across China in March and April, including the commercial capital, Shanghai.

While many of those curbs have since been lifted, and June data offered signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough zero-Covid policy amid fresh flare-ups, the country’s property market is in a deep slump, and the global outlook is darkening.

We’ll have more reaction to the China slowdown shortly.

Also coming up today

UK travellers are facing more disruption this summer, after the RMT union announced last night that drivers at 14 train operating companies are to go on strike on two days next month, bringing many services to a halt.

The strike, on 18 and 20 August, is part of an ongoing dispute over jobs, pay and working conditions.

A separate UK-wide rail strike is set to take place on 30 July as train drivers across eight companies walk out for 24 hours, the ASLEF union announced yesterday.

Pressure is mounting on Heathrow boss John Holland-Kaye, after ministers gave him until noon today to provide a plan to resolve the airport’s staffing problems, the Daily Telegraph reported.

The move comes aftert Emirates refused its demand to cut flights to help address chaos at the airport.

Investors will be watching Italy, where a political crisis is bubbling away. Yesterday Italy’s prime minister Mario Draghi offered his resignation after the 5-Star Movement, a coalition party, failed to back him in a confidence vote -- but the country’s president has rejected it.

And the latest US retail sales and industrial production data could influence how sharply the US Federal Reserve raises interest rates later this month.

The agenda

  • 7am BST: European car sales for June
  • 9am BST: Italian inflation report for June
  • 10am BST: Eurozone trade balance for May
  • 1.30pm BST: US retail sales for June
  • 2.15pm BST: US industrial production for June
  • 3pm BST: University of Michigan consumer sentiment index for July

Updated

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‘It’s obviously part of my psyche, given how young I was,’ she recalls about the eating disorder claims
The Independent UK
The Independent UK
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