The Chinese RMB has strengthened against the dollar in the region of 2.5% in the last four weeks, as the below graph from XE currency exchange firm shows. The RMB moved from 6.951 to 6.770 per dollar — equating to a stronger RMB, or weaker dollar.
Ken Cheung, a strategist at Mizuho Bank, is quoted as saying the onshore RMB could rise further, supported by stronger consumer spending and a tightening labor market.
To what extent, though, is this RMB surge a result of a markedly improving economy? How much is down to just a weakening dollar — a phenomenon we have explored previously on MetalMiner — as a major driver of commodity price recovery over the summer?
Debt approaches highest level in four decades as India’s economy struggles
According to The New York Times, the government’s tax revenues have plummeted. Some states are unable to pay health care workers and government debt is approaching its highest level in 40 years.
As the below graph from Trading Economics shows, unemployment soured in the spring following the government’s ill-fated lockdown March 24:
The recovery has been swift but far from complete. Tens of millions of migrant workers, for example, are reluctant to return from the countryside to the cities.
As the New York Times explains, the lockdown was announced with just four hours notice. Offices, factories, trains, roads and even the borders between states were closed.
Instantly, tens of millions of Indians lost their jobs. Facing potential starvation, many began streaming back to their homes in the countryside, often by foot, in an epic migration of biblical proportions.
In the process, they spread the virus to every corner of the country and within touching distance of all 1.3 billion people.
Back to work?
As the unemployment figures show, some businesses are getting back to work despite the rising infection rates. The authorities are trying to contain local outbreaks while limiting a nationwide surge, but it is a juggling act they appear to be losing.
Workers remain reluctant to go back to work. Construction and factory workers are in many cases staying in their countryside villages.
In addition, consumption is way down. That is due to consumers’ fear of catching the virus in shopping malls and because of uncertainty over what the future holds. As such, saving for tomorrow is more of a priority than spending today.
Cities like New Delhi that had seen a gradual return to life are now seeing local containment zones being applied again as infection rates rise.
The New York Times cited a recent Google Mobility Report — which tracks cell-phone data — that noted trips to retail and recreation areas have dropped by 39% compared with before the pandemic. In Brazil and the United States, the drops were less than half as severe.
Economy struggles even before pandemic
The economy was suffering before the pandemic.
Quarter by quarter, India’s economic growth rate has been dropping, The New York Times states, from 8% p.a. in 2016 to 4% right before the pandemic.
A growth rate of 4% would be great for the U.S. or Europe. In India, that level is nowhere near enough. Millions of young people are streaming into the workforce each year, hungry for their first job.
Thankfully, the death toll is low compared to the level of infections. However, even at the official figure of 71,680 to date, it is sufficiently high for the population to be extremely wary of returning to life as normal. Many suspect – both inside the country and outside observers – that the true figure is much higher.
The resulting caution is a major hindrance to the economy returning to any level of growth before next year and even beyond.
We’re offering timely emails with exclusive analyst commentary and some best practice advice – and you choose how often you receive it. Sign up here.
India’s economy contracted by an annualized 23.9% in the second quarter ending June 2020, the Financial Times reported, as if that was an exceptional decline.
In fact, the U.K. and several European economies contracted the same amount.
Like India, they have begun to recover since.
With that said, nowhere is back to pre-pandemic levels.
Unemployment levels surge in India
Economically, more worrying for India is the level of unemployment.
Lockdown related to the pandemic caused an estimated 140 million job losses, the article notes. The pandemic hit after four years of gradually falling GDP growth – itself a cause of considerable worry when the rest of the world economy had been doing quite well.
India was falling below the level needed to create meaningful employment for its growing younger generation of job seekers.
Virus cases rise despite lockdown measures
More worrying for health officials is the lockdown has failed to stop the spread of the virus among the population. The country is detecting more new coronavirus cases than any other — with about 79,500 infections confirmed in the past 24 hours, the Financial Times reports.
At the current pace, India is expected to soon surpass Brazil in terms of cumulative COVID-19 cases, second only to the U.S.
The official death toll in India stands at 65,000. That compares with more than 183,000 lives in the U.S. and more than 120,000 in Brazil. Some put India’s number down to a relatively young population and hardy resistance to disease. However, the number may equally be due to underreporting of deaths due to the virus as opposed to deaths due to other complications.
Since the end of the lockdown, the economy has been recovering.
The Financial Times cited investment bank Nomura, which said the pace of normalization was faltering.
The investment bank estimated aggregate demand in July reached just 67% of pre-pandemic levels. In August, the imposition of localized state-level lockdowns disrupted economic activity. New Delhi has now prohibited those lockdowns in the interests of encouraging economic recovery.
Like many countries, India is walking a fine line between controlling the spread of the virus and minimizing economic damage.
Unlike better-funded, mature economies, India does not enjoy the financial reserves or have the latitude to take on massive borrowing to support the economy. Priyanka Kishore, head of India and South East Asia Economics at Oxford Economics, is not alone in saying the central government needs to spend more to support incomes and, hence, consumption if it wants to see a sustainable economic recovery.
True to form, if not to scale, Beijing resorted to infrastructure spending this quarter to support the economy as it sought to pull the country out of government-imposed lockdowns in the first quarter.
While positive coronavirus cases are on the rise in several parts of the country, industrial production bounced back in May after posting the largest monthly drop in the history of the Federal Reserve’s industrial production index in April.
Having topped the European league tables with the highest number of infections and deaths due to the coronavirus pandemic, the U.K. looks set to top the recession league table, according to a recent report by the Organization for Economic Cooperation and Development (OECD).
This morning in metals news, the Federal Reserve on Wednesday opted to maintain the federal fund interest rate at 0-0.25%, the Producer Price Index for final demand rose 0.4% in May and Chinese rebar futures fell Thursday.
Can China ever record economic growth greater than 6%?
We don’t know, but if I were a betting man I’d say not.
After contracting some 6.8% in the first quarter of this year, estimates vary with respect to what China’s GDP growth will be for 2020 in total. CRU expects between 2-3%, according to a Financial Times article, but analysts polled by the South China Morning Post are quoting between 1.5-2.5%, with some major banks, like UBS, expecting growth at the bottom of that range.
Economists and parts of the media are openly debating whether the massive financial support that is being injected into the economy and the resulting unprecedented levels of debt governments are taking on will fuel inflation down the line.