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

The reopening of China has been one of the most discussed topics at the World Economic Forum in Davos.

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

China’s decision to welcome tourists again and make it easier for those in the country to travel abroad has been one of the most discussed topics at the Davos meeting in the Swiss Alps.

It is widely regarded as one of the most important economic events of 2023 and the business community is noticeably excited to strike new deals with the world’s second largest economy.

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 increase, if this creates more pressure on commodity prices, for example natural gas, a big problem in Europe, if Chinese demand for natural gas increases, because the factories, their homes demand more electricity, then it will go. put pressure on Europe because natural gas, they are competing [in] the same liquefied natural gas markets,” Raghuram Rajan, former central bank governor of the Reserve Bank of India, told CNBC.

“So China opens up [is] Good news overall, but potentially, the inflationary impact, there could be some,” he said.

WEF Davos: China's reopening

The International Energy Agency has warned that European companies could face higher costs when looking 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 driven by higher energy bills.

Speaking on a panel moderated by CNBC, Satish Shankar, APAC managing partner at consulting firm Bain & Company, said: “I think China’s opening up will increase, so global energy consumption, could lead to some inflation”.

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

Some economists have warned that if this is the case, the US Federal Reserve may have to keep raising rates. “In our view … a stronger China increases the chances of a stubbornly hawkish Fed,” Tavis McCourt, institutional equity strategist at Raymond James, said in his 2023 outlook.

“With China, we need more of everything – if that drives demand enough to bring commodity prices back to where they were in the spring of last year, that makes the progress we’ve seen in inflation that much more dim. position,” he said.

The second half of the year will be better as China surprises on the upside: Standard Chartered

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

Standard Chartered chairman José Viñals told CNBC in Davos this week that China will have a very good year and a surprise on the upside.

“The Chinese economy is going to catch fire and that’s going to 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 the reopening from China will help the global economy.

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

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