Standard Chartered Bank (SCB) downtown, brand logo and office building in Shanghai.
Andy Feng | iStock Editorial | Getty Images
According to Standard Chartered Chairman José Viñals, China’s economy will be “on fire” in the second half of 2023 as economic performance between east and west diverges.
The reopening of China’s economy after several years of strict “zero-Covid” measures has boosted sentiment among economists that the global growth and inflation picture this year may be less gloomy than initially feared.
OECD Secretary-General Mathias Cormann said earlier this week the reopening was “overwhelmingly positive” in the global fight against sky-high inflation.
China’s GDP grew by just 3% in 2022, official figures revealed earlier this week, the second slowest growth rate since 1976 and well below the government’s target of around 5.5%. However, near-term data pointed to a faster-than-expected recovery as pandemic-era measures are eased.
Reopening has proved difficult as China has reported a huge spike in Covid cases and deaths in recent weeks.
While acknowledging the human cost of the increased death toll, Viñals suggested the resulting widespread immunity, which some analysts have suggested will emerge in conjunction with the reopening of borders, will allow the economy to recover in 2023 “to surprise upwards”.
“I think the Chinese economy will be on fire in the second half of the year and that will be very, very important to the rest of the world,” he told CNBC at the World Economic Forum in Davos. Switzerland.
“This comes not only from the reopening of Covid, but also from the support that the government is giving with its fiscal policy, supporting the very important real estate sector and reducing the intensity of regulation or regulatory crackdown on some sectors like the IT sector, so I think all those things are going to be very important positives.”
Emerging market resurgence
Alongside a contrast between global economic performance in the first and second half of the year, Viñals also hinted that there will be a divergence between the Eastern and Western hemispheres, with Asia and the Middle East driving global growth in 2023.
Despite the US Federal Reserve’s aggressive monetary tightening and a strong US dollar in 2022, much of emerging markets has proved surprisingly resilient.
Viñals said the structural improvements that have helped isolate many emerging economies would also allow them to prosper in the years to come.
“Not all emerging markets are created equal and they have very different exposures to the higher dollar and higher interest rates in the United States, and those who are more adversely affected are those that have high foreign currency debt,” he said.
“There are a number of low- and middle-income countries that are definitely in trouble, but things are going well for the vast majority of emerging markets.”
He specifically pointed to India and some of the Southeast Asian countries, which suffered a domino effect during the taper tantrum of 2013, in which a sharp sell-off in markets prompted the Fed to slow the pace of government bond sales.
“I think that improving emerging market fundamentals, improving foreign exchange reserve accumulation, better economic policies, better governance, all of these help gain or keep confidence and I think that’s a huge benefit for them ,” Vinals said.