China reopens ‘good news’ for growth – but could be inflationary, economists in Davos warn

China’s reopening was one of the hottest topics at the World Economic Forum in Davos.

Bloomberg | Bloomberg | Getty Images

DAVOS, Switzerland – China’s economic reopening could boost global growth, but business leaders and policymakers at the World Economic Forum this week are also a little concerned about the potential inflationary impact.

China’s decision to welcome tourists back and make it easier for those in the country to travel abroad was one of the hottest topics at the Davos meeting in the Swiss Alps.

All in all, this is seen as one of the most important economic events in 2023 and the business community is noticeably excited about closing new deals with the second largest economy in the world.

On the other hand, however, there are concerns about what this means for inflation and the cost of living.

“[If] Chinese demand for other goods starts to pick up if that puts more pressure on commodity prices for example natural gas which is a big problem in Europe if Chinese demand for natural gas increases because the factories their households demand more electricity then things will go to pressure Europe because natural gas, they compete [in] same markets for liquefied natural gas,” Raghuram Rajan, former central bank governor of the Reserve Bank of India, told CNBC.

So China is opening up [is] good news overall, but potentially, the inflationary impact — there could be,” he said.

WEF Davos: The Reopening of China

The International Energy Agency has warned that European companies may face higher costs if they want to buy natural gas this year, as there will be more competition for the raw material. Inflation has been one of the biggest challenges for European citizens over the past year, mainly due to higher energy bills.

Satish Shankar, managing partner for APAC at consulting firm Bain & Company, said in a panel moderated by CNBC, “I think China’s opening will therefore increase global energy consumption, it could cause some inflation.”

Felix Sutter, president of the Swiss-China Chamber of Commerce said at the same panel that “Chinese energy needs and raw material needs will compete with European needs, global needs, so I see inflation easing now, [but] we will see more pressure on inflation in the third quarter.”

Some economists have warned that if this proves to be the case, the US Federal Reserve may have to raise rates further. “In our view… a stronger China increases the likelihood of a stubbornly aggressive Fed,” said Tavis McCourt, institutional equity strategist at Raymond James, in his 2023 outlook.

“With China, we need more of everything – if that stimulates enough demand to bring commodity prices back closer to last year’s levels in the spring, then that puts the progress we’ve seen on inflation in a much weaker position.” position,” he said.

The second half of the year will be better if China surprises positively: Standard Chartered

China recently reported a 3% growth rate for 2022, the second lowest growth rate since 1976. Nevertheless, shorter-term data has boosted expectations of a better-than-expected recovery with December retail sales and industrial production above consensus.

José Viñals, chairman of Standard Chartered, told CNBC this week in Davos that China is going to have a very good year and it will be a positive surprise.

“The Chinese economy will be on fire and that will be very, very important for the rest of the world,” he said.

Meanwhile, Rio Tinto CEO Jakob Stausholm also sounded positive about China’s economy and its natural impact on global growth, telling CNBC in Davos that he was “absolutely convinced” that China’s reopening will help the global economy. .

– CNBC’s Arjun Kharpal and Jihye Lee contributed to this article.

Leave a Comment