The Chinese government’s removal of the last of its pandemic restrictions will likely bring more disruptions to the economy early next year as Covid infections surge. However, after an initial infection surge in the first quarter, the economy should recover over the rest of the year.
China’s removal of its strict Covid Zero policies has been more sudden and aggressive than most businesses and analysts expected. While that added uncertainty to China’s growth outlook in early 2023, the faster reopening of the economy may shorten the duration of any economic shocks. Also, economic disruptions are likely to be concentrated in the months surrounding the Chinese New Year holiday, a period when production usually slows in any case.
According to Citigroup’s chief China economist, the impact of Covid disruptions on annual growth next year “could be smaller” than previously estimated as “the government’s approach appears to be to pass the high wave of infections as fast as possible.” He added that China’s “quick policy shift is to pave the way to a fuller economic recovery” later in 2023.
Bloomberg Economics says the quick reopening of China will be a mixed blessing for the global economy. A revival in Chinese tourism could boost business in service sectors around the world, while more accessible business travel in and out of China may help ease supply-chain strains. However, faster growth will lead to a more robust demand for commodities, working against an anticipated slowdown in global inflation.
A wildcard in the reopening of China’s economy is the potential of a global recession, which would curb export growth in China. The chief economist for Greater China at ING Groep NV said, “the timing by the Chinese government to reopen the domestic economy is not perfect, as a potential global slowdown will curb export-related activities, including manufacturing, which would derail the recovery of the Chinese economy.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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