{"id":185941,"date":"2023-03-02T11:30:00","date_gmt":"2023-03-02T16:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=185941"},"modified":"2023-03-02T10:56:29","modified_gmt":"2023-03-02T15:56:29","slug":"will-chinas-re-opening-actually-benefit-the-global-economy","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/will-chinas-re-opening-actually-benefit-the-global-economy\/","title":{"rendered":"Will China\u2019s Re-Opening Actually Benefit The Global Economy?"},"content":{"rendered":"\n<p>We look at whether China\u2019s recovery will boost the rest of the world by raising growth or whether it will cause inflation to come roaring back.<\/p>\n\n\n\n<p>The outlook is decisively better for China after the government\u2019s pivot on zero-Covid policy (ZCP) late last year. Early indications from high frequency data and the January PMI surveys are that service sector activity has rebounded strongly. By contrast, the positive impact on manufacturing was capped by weak external demand while housing transactions have only muddled along after some initial improvement.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-recovery-in-china-to-be-driven-by-services\"><strong>Recovery in China to be driven by services<\/strong><\/h2>\n\n\n\n<p>This is likely to set the tone for the shape of the recovery. After all, it is China\u2019s service sector that has really been hampered by ZCP over the past couple of years as restrictions curbed travel. \u201cRevenge spending\u201d on services has been observed in most economies around the world that have transitioned away from measures aimed to contain the spread of Covid, and China is likely to experience the same release of pent-up consumer demand.<\/p>\n\n\n\n<p>However, a key difference to other economies \u2013 certainly major developed markets \u2013 is that households in China do not appear to be sitting on a huge stock of savings that can be drawn down to fund a prolonged period of rampant consumption. While China\u2019s savings rate has risen a bit, fiscal support has focused on helping the supply side of the economy rather than direct transfers to households, as was the case in the US, for example.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-sugar-high-recovery-likely-to-fade-into-2024\"><strong>\u201cSugar high\u201d recovery likely to fade into 2024<\/strong><\/h2>\n\n\n\n<p>Our baseline forecast for China now assumes three consecutive quarters of above-trend growth starting in Q1 2023 skewed towards services. We think that will lift GDP growth from our previous forecast of 5% to around 6.2% in 2023. However, the \u201csugar high\u201d will probably fade as the release of pent-up demand is exhausted, savings are spent and cyclical forces turn less favourable. We think GDP growth will ease back to 4.5% in 2024.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-limited-spill-over-to-other-economies\"><strong>Limited spill-over to other economies<\/strong><\/h2>\n\n\n\n<p>The positive spill-overs to other economies may be quite limited.<\/p>\n\n\n\n<p><strong><em>&#8211; Small Asian economies to benefit:<\/em><\/strong><\/p>\n\n\n\n<p>The return of Chinese tourists will boost other parts of Asia, but these are likely to be the small Asian economies that account for only a fraction of world GDP.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"763\" height=\"487\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/03\/chart.jpg\" alt=\"The return of Chinese tourists will boost some economies\" class=\"wp-image-185943 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/03\/chart.jpg 763w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/03\/chart-700x447.jpg 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/03\/chart-300x191.jpg 300w\" data-sizes=\"(max-width: 763px) 100vw, 763px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 763px; aspect-ratio: 763\/487;\" \/><\/figure>\n\n\n\n<p><strong><em>&#8211; European exporters may not benefit as much as in the past:<\/em><\/strong><\/p>\n\n\n\n<p>Europe would usually benefit from an upturn in China\u2019s economic cycle as stronger growth stimulates investment by manufacturers in response to an increase in demand for goods. However, we expect the recovery to be skewed towards services, not manufacturing.<\/p>\n\n\n\n<p>Furthermore, prior strong investment and soft external demand means that the recovery is unlikely to spur a renewed investment cycle in manufacturing that sucks in imports from Europe and the rest of the world. Finally, while ZCP may have delayed foreign direct investment, it is not clear if multinationals will increase investment in China at a time when geopolitical pressures are pushing for supply chain diversification.<\/p>\n\n\n\n<p><strong>&#8211;&nbsp;<em>Energy exporters could benefit<\/em><\/strong><\/p>\n\n\n\n<p>Commodity exporters may receive some support if prices rise,&nbsp; but the playbook may be different this time. Whereas past recoveries driven by construction have buoyed the prices of industrial metals, benefiting exporters in the likes of Latin America and Africa, a recovery in services may be more supportive of energy. This could fire up global inflation again, putting real incomes back under pressure and leaving less room for central banks to lower interest rates in 2024. Some emerging markets would thrive in an environment of higher oil prices, but most face a period of sluggish growth as higher interest rates and subdued external demand bite.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>China\u2019s re-opening won\u2019t benefit the global economy<\/strong>&nbsp;<strong>much<\/strong><\/h2>\n\n\n\n<p>The upshot is that while abandoning ZCP has clearly improved the outlook for China this year, the rest of the world may not benefit much, if at all. Indeed, while we have also revised up our expectations for growth in the US and eurozone this year, the upgrades are due to domestic factors rather than a boost from China.<\/p>\n\n\n\n<p>&#8212;<\/p>\n\n\n\n<p>Originally Posted March 1, 2023 &#8211; <a href=\"https:\/\/www.schroders.com\/en\/insights\/economics\/will-chinas-re-opening-actually-benefit-the-global-economy\/\">Will China\u2019s re-opening actually benefit the global economy?<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We look at whether China\u2019s recovery will boost the rest of the world by raising growth or whether it will cause inflation to come roaring back.<\/p>\n","protected":false},"author":561,"featured_media":185943,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4,5,18,6,8,9,1031,26,3],"tags":[216,14229,14847,3109,591],"contributors-categories":[13578],"class_list":{"0":"post-185941","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-asia","8":"category-europe-middle-east-africa","9":"category-macro","10":"category-north-america","11":"category-region","12":"category-securities","13":"category-south-america","14":"category-text-articles","15":"category-traders-insight","16":"tag-china","17":"tag-china-outlook","18":"tag-china-re-opening","19":"tag-global-economy","20":"tag-outlook","21":"contributors-categories-schroders"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is 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