China¡¯s reopening is set to provide a welcome boost to global growth, offsetting weakness in Europe and a looming recession in the U.S. But unlike in 2009, when China¡¯s 4 trillion yuan stimulus helped kick-start a recovery from the financial collapse, in 2023 there¡¯s a catch ¡ª a boost to inflation at exactly the moment the Federal Reserve and other central banks are racing to bring it back under control.
That¡¯s why Kristalina Georgieva, head of the International Monetary Fund, said this month that China¡¯s pivot from ¡°zero-COVID¡± is probably the single most important factor for global growth in 2023, but cautioned on what it might mean for inflation. ¡°What if the good news of China growing faster translates into oil and gas prices jumping up, putting pressure on inflation?¡± she said at the World Economic Forum in Davos.
Bloomberg Economics forecasts an increase in China¡¯s GDP from 3% in 2022 to 5.8% in 2023. Modeling the relation between China¡¯s growth, energy prices and global inflation suggests that could lift consumer prices by close to a full percentage point in the final quarter of 2023. If China outperforms, with growth surging to 6.7%, the boost would be closer to two percentage points.
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