China’s reopening may not be enough to change global slowdown

CHINA’S reopening is good news for global economies, but some economists worry it may not be enough to change the slowdown in global growth this year.

Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, said on Friday (Jan 13) that while the bank continues to forecast below-potential annual average global gross domestic product growth of 2.2 per cent in 2023, it is now above consensus for most major economies.

“Our recent growth upgrades reflect a stronger growth impulse from China’s reopening, European resilience to the energy crisis (given a warmer-than-expected winter), and a US economy that proves resilient to monetary tightening as the impact of rate hikes fades throughout 2023,” Tilton said, adding that the improved global growth outlook has “room to run”.

Goldman Sachs upgraded its 2023 growth for the Euro area to 0.6 per cent, and no longer expects a recession there.

China is expected to grow 5.2 per cent this year, while the US could see a 1.4 per cent expansion, “well above consensus expectations for a 0.3 per cent growth and a technical recession”.

Ajay Rajadhyaksha, global chairman of research at Barclays, however, expects the world to grow at 1.7 per cent, a big slowdown from the more than 6 per cent growth in 2021 and a significant drop from the 3.2 per cent growth projected for 2022.

Despite reopening and some encouraging policy initiatives to reboot the economy, he said, China is not large enough to change the overall global growth outlook.

The World Bank too slashed its 2023 global economy growth outlook to 1.7 per cent for 2023 from its earlier projection of 3 per cent on worsening economic conditions.

The International Monetary Fund said 2023 would be another “tough year” for the global economy as inflation remained stubborn, and it is not expected to change its 2.7 per cent growth forecast for 2023.

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Before Covid-19, China would deliver 30 per cent to 40 per cent of global growth. But the world’s second-largest economy is not doing that any more.

The United States – the world’s largest economy – will face the lagged impact of the Federal Reserve’s aggressive tightening.

Economic weakness will be pronounced in interest-rate-sensitive economies such as Canada, Australia, New Zealand, and the United Kingdom. Europe will also be hit by the growth drag.

The slowing demand from advanced economies, elevated inflation, and a still-strong US dollar are potential headwinds for export-oriented Asia.

Sue Trinh, co-head, global macro strategy at Manulife Investment Management, said: “It will be difficult for Asia-Pacific to escape the downdraft of a global recession. Consumer spending will also likely be restrained by the recent aggressive interest-rate hikes and elevated inflation.”

The Economist Intelligence Unit (EIU) expects Asia to grow 3.5 per cent this year, short of the pre-pandemic trend of 4-5 per cent. Simon Baptist, EIU’s chief economist, said China, Hong Kong and Thailand are the three exceptions in Asia that will grow faster this year than last year as the mainland reopens.

Yue Su, EIU’s principal economist for China, said a bumpy exit from zero-Covid policy, weak external demand, a still-struggling property sector, and insufficient policy support could extend China’s below-trend economic growth into 2024.