COVID comes back for a second bite

<p>Kia ora,</p><p>Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news the pandemic is taking second bite out of our economic recovery.</p><p>But first, <a href="http://www.stats.gov.cn/tjsj/zxfb/202106/t20210627_1818792.html"><strong>industrial profits in May</strong></a> in China recovered strongly on a year-on-year basis, but if we compare them with May 2019 levels they are up a still-good overall +48%. But the recovery is still unbalanced, with smaller companies registering a slower pace than large and medium-sized enterprises. Of 41 industrial sectors tracked, nearly 70% posted yearly profit increases for May, while 80% showed profits at about 2019 levels.</p><p>China is <a href="http://www.chinadaily.com.cn/a/202106/25/WS60d53c84a31024ad0bacb7bc.html" target="_blank"><strong>focusing its efforts</strong></a> to get its relatively low consumption (60% of GDP) up to developed country levels (80% of GDP). And their 'dual circulation' policy is aimed at doing that. They have a very long way to go, but the progress will be quite extraordinary and distortionary to the world economy with many winners and some losers along the way.</p><p>S&P has affirmed its A+ credit rating for China. It is not a rating that China has solicited. It sees the country able to maintain above-average growth in the next few years and wants to see it repair its deteriorated fiscal debt position over the next three to four years.</p><p>China is trying to <a href="https://asia.nikkei.com/Politics/International-relations/China-Australia-ties-plumb-new-depths-over-subs-trade-and-coral" target="_blank"><strong>tighten the screws</strong></a> on its trade with Australia, now extending the pushback to other areas. The WTO actions it initiated last week involve matters involving 1995 events (stainless steel sinks) so it is digging deep into its bottom drawers to find pressure points