Macroscope | Can China’s rebound save the global economy?

As China sees demand return and economic activity pick up, the rest of the world is experiencing a slowdown thanks to inflation-fighting policies

While a rise in Chinese consumption may boost global growth, changing the trajectory of the global economy is a tall order

Reading Time:3 minutes

People in Shanghai pass a screen showing stock exchange data on March 15. Photo: EPA-EFE

Published: 9:30pm, 21 Mar 2023

China’s earlier-than-expected economic reopening following the abrupt end of its zero-Covid policy has been hailed by global strategists and investors as one of the defining events of 2023. China’s growth should rebound, although to what extent depends on the strength of the recovery in consumption.

However, representing around 15 per cent of world gross domestic product, China will struggle to change the slowing of the global growth trajectory on its own.

Overall, China’s sharp reversal of zero-Covid should have the biggest impact on domestic demand, once the initial shock fades. There was concern about the impact on supply chains, given that some disruption appears likely during the initial phase of reopening.

However, given the Chinese authorities’ track record of restoring supply chains relatively quickly in the wake of shocks, we might expect them to soon return to relatively normal operational status. Indicators such as the PMI supplier delivery times or freight shipping costs are normalising relatively quickly, bearing this out.

China’s economic growth should be in the range of 4-6 per cent in 2023. But to get to 5 per cent or over, consumption will have to be the main driver and will need to grow by 9 per cent or more (including public consumption). Overall, domestic demand is likely to need to increase from 2 per cent growth in 2022 to 6 per cent or over this year.

The data from January and February suggest the recovery is on a promising path with solid gains in sequential production, retail sales and a rebound in housing sales. But there is still uncertainty around whether the pace of this initial rebound will be sustained.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Can China’s rebound save the global economy?

Macroscope | Can China’s rebound save the global economy?