Australia braces for supply chain hit from China’s Covid surge

AUSTRALIA expects a “substantial impact” on global supply chains from surging Covid-19 cases in China, and is monitoring the situation “very closely”, Treasurer Jim Chalmers said.

“We do expect there to be big pressure on the Chinese workforce, big pressure on supply chains,” Chalmers told the Australian Broadcasting Corporation in a radio interview on Wednesday (Jan 4). “As a consequence, that will flow through to the global economy, and we won’t be immune from that either.”

Covid cases in China soared after the country abandoned its strict “zero-Covid” protocols, letting the virus run rampant. That has prompted countries, from the US to Australia, to impose restrictions on Chinese travellers. But Australia’s biggest trading partner is China, and it is one of the world’s most China-exposed developed economies.

“We are monitoring very closely what’s happening with these supply chains which are impacted, and will be impacted, by this Covid wave,” Chalmers said. “We haven’t put a dollar figure on it. We expect it will be a substantial impact, but that full impact is unclear.”

China’s Covid wave will not be the only risk for the world economy this year, the treasurer added, predicting that 2023 would be “difficult”. A raging war in Ukraine, fears of a world recession led by the US, rising interest rates at home and globally, as well as extreme weather events will prove “big determinants of how our economy fares in 2023”, he said.

Economists said they expected Australia’s A$2.2 trillion (S$2 trillion) economy to buck the global trend and dodge a recession. This was in spite of the Reserve Bank of Australia pushing interest rates to a decade high of 3.1 per cent, in a bid to combat rising inflation. The central bank has signalled that further hikes are likely this year. BLOOMBERG