China reopens ‘good news’ for growth – but could be inflationary, economists warn at Davos
China’s reopening 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 the potential impact. his on inflation.
China’s decision to welcome tourists again as well as make it easier for those in the country to travel abroad has been one of the most discussed topics at the Davos gathering in the Alps. – Switzerland.
Overall, this is seen as one of the most important economic events of 2023 and the business community is very excited about making new deals with the second largest economy in the world.
On the other hand, however, there are concerns about what this means for inflation and the cost of living.
“[If] Chinese demand for other products starts to pick up, if that creates more pressure on commodity prices, for example, natural gas, a big issue in Europe, if Chinese natural gas demand increases, because the factories, their homes want more electricity, it goes. to put pressure on Europe because natural gas, they compete [in] the only markets for liquefied natural gas,” Raghuram Rajan, former governor of the Reserve Bank of India, told CNBC.
“Thus the opening of China [is] good news overall, but maybe, the impact of inflation – there could be some,” he said.
The International Energy Agency has warned that European companies may face higher costs when looking to buy natural gas this year because there will be more competition for the product. Inflation has been one of the biggest challenges for European citizens for the past year, mostly driven by higher energy bills.
Speaking on a panel moderated by CNBC, Satish Shankar, managing partner for APAC at consultancy Bain & Company, said: “I think the opening of China will increase consumption in global energy, it could cause some inflation. “
Felix Sutter, president of the Swiss-Chinese Chamber of Commerce said at the same panel “Chinese energy needs and raw material needs will compete with European needs, global needs, so I see a relaxation of inflation in the -currently, [but] we will see more pressure on inflation in Q3.”
Some economists have warned that if this is true, the US Federal Reserve may have to keep raising rates longer. “In our opinion…
“With China, we need more of everything – if that drives enough demand to get commodity prices back closer to where they were last spring, that’s putting the progress we’ve seen on inflation into a tighter period. situation,” he said.
China recently reported a growth rate of 3% for 2022, the second slowest growth rate since 1976. However, short-term data has raised expectations for a better-than-expected recovery with December retail sales and industrial production above consensus.
Standard Chartered Chairman José Viñals told CNBC in Davos this week that China is going to have a very good year and a surprise on the upside.
“The Chinese economy is going to be on 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 felt positive about the Chinese economy and its natural impact on global growth, telling CNBC in Davos that he was “absolutely sure” that it would help China’s reopening of the world economy.
– CNBC’s Arjun Kharpal and Jihye Lee contributed to this article.