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Exposed banks, due to low water levels caused by drought, along the Han River near the confluence with the Yangtze River in Wuhan, China, on Monday, Aug. 22, 2022. An extreme summer has taken a toll on Asia's longest river, which flows about 3,900 miles (6,276 kilometers) through China and feeds farms that provide half of the country's food and thousands of hydroelectric stations, including the Three Gorges Dam — the world’s biggest power plant. , Bloomberg

(Bloomberg) -- China’s economy continued to recover in August but warning signs are flashing across a number of fronts as drought and weaker global demand add new risks to growth prospects. 

That’s the outlook based on Bloomberg’s aggregate index of eight early indicators for this month. The overall gauge was at 5, unchanged from July, signaling momentum has steadied.

Strong overseas demand for Chinese goods, which has helped to offset some of the damage from Covid lockdowns on domestic spending, weakened sharply in August. South Korean exports, a leading indicator for global trade, barely grew in the first 20 days of this month from a year earlier. 

The 0.5% increase in South Korea’s average daily shipments was the weakest since late 2020 and was a marked slowdown from the 14.5% rise in the same period last month. A slump in Hong Kong’s July exports also showed how a cooling global economy, worldwide interest-rate hikes and Covid disruptions are affecting demand.

For China’s domestic economy, the picture isn’t rosy either. The property market slump extended into August, with sales continuing to plunge in China’s four top cities. That’s despite months of efforts by the government to boost lending to home buyers, lower mortgages rates and allow more flexibility for down payments. 

The latest official data showed property loans in July grew at the weakest rate since comparable data began in 2012. Mortgage rates will likely continue to be cut to a record low of 4.1% after banks reduced their five-year loan prime rate by 15 basis points earlier this week to boost housing demand. 

Growth in car sales was also much slower than in July, another indication of weak domestic demand. Premier Li Keqiang promised last week to maintain preferential policies that are designed to boost sales and stimulate demand for cleaner cars as part of efforts to support the development of the electric vehicle industry. 

New economic headwinds this month, including a power crunch and Covid flareups, have hurt business confidence, especially among smaller firms. Standard Chartered Plc’s survey of more than 500 smaller companies showed confidence slipped in August as production activity “slowed significantly,” new orders weakened, and bank financing costs picked up. 

“Ongoing Covid-led disruption and power-rationing measures imposed in some key production areas, including Sichuan, resulted in temporary factory shutdowns,” the firm’s economists Hunter Chan and Ding Shuang wrote in a report. “The disruption in production and sales resulted in a faster increase in raw material inventories and finished goods prices.”

Covid outbreaks continued to derail what is usually the peak season at some of China’s top summer hot spots. The seaside city of Beihai only recently emerged from a monthlong lockdown, more than 100,000 tourists were trapped on the tropical island of Hainan because of outbreaks there, while Tibet had tens of thousands of tourists stranded in the region due to canceled flights and road blocks to contain infections. 

A drought-induced power shortage has forced factories to shut down and shopping malls to turn off lights, especially in cities in western China. Although the economic damage is expected to be smaller than from power shortages last year, economists still expect industrial output to be hit in August. 

Policy makers on Wednesday stepped up their economic stimulus with a further 1 trillion yuan ($146 billion) of funding largely focused on infrastructure spending. However, economists were relatively downbeat on the measures, saying they likely won’t go far enough to counter the damage from repeated Covid lockdowns and the property market slump.

Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.

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Federal Reserve Chair Jerome Powell signalled the U.S. central bank is likely to keep raising interest rates and leave them elevated for a while to stamp out inflation, and he pushed back against any idea that the Fed would soon reverse course.

Stock markets in Canada and the United States were down in late-morning trading following a speech by U.S. Federal Reserve chair Jerome Powell in which he said he expects to keep interest rates high in his fight against inflation.

Stocks sank as Jerome Powell gave a short and clear message that rates will stay high for some time, pushing back against the idea of a U.S. Federal Reserve pivot that could complicate its war against inflation.

In many cases, cash-strapped households have no alternative. But those able to choose whether to trim their RRSP and TFSA contributions could be denying themselves the inflation-fighting power of compound interest.