Bullishness about the global economy has been in short supply among business leaders in recent months, with fears of recession clouding the outlook and restraining investment. Now, cautious optimism is peeking through.
That’s thanks in large part to China, whose sudden removal of strict coronavirus restrictions late last year is expected to unleash a wave of spending that may offset economic weakness in the United States and Europe.
“The reopening of China has to be the major event and it will be a major driver of growth,” Laura Cha, chair of Hong Kong Exchanges and Clearing, said at the World Economic Forum in Davos, Switzerland on Tuesday.
It’s an assessment shared by plenty of others attending the annual gathering of executives, billionaires and politicians in the Swiss mountain resort, in contrast with the WEF’s survey of chief economists published Monday showing two-thirds of them think a recession in 2023 is likely.
Douglas Peterson, the chief executive of S&P Global, said that despite his expectations for a shallow recession in Europe, the United Kingdom and the United States this year, China’s more relaxed approach to coronavirus — after three years of strict lockdowns, closed borders and aggressive testing — would help offset the global pain.
“There’s pent up savings, there’s pent up demand, so we expect China will see very strong growth, especially as you get later in the year,” Peterson said, adding that he anticipates “net growth globally this year.”
China’s zero Covid policies were a drag on global growth in 2022. The world’s second largest economy expanded by just 3%, one of its worst performances in nearly a half century. But Liu He, the country’s vice premier, said in a keynote speech in Davos Tuesday that the country’s reopening would spark a resurgence in activity and economic development.
“If we work hard enough, we are confident that in 2023 China’s growth will most likely return to its normal trend and the Chinese economy will see a significant improvement,” Liu said.
The expected boost remains difficult to quantify. Near term, China is in the grip of its worst coronavirus outbreak, keeping many people indoors and emptying shops and restaurants in recent weeks. Future waves could have a similar effect. (Liu said Tuesday that the Covid situation “is steadying.”)
Splurging by Chinese consumers and businesses could also reignite inflation if demand for fuel and agricultural commodities increases dramatically.
Yet to many, the changing situation in China represents a bright spot.
“I’m expecting a solid growth number for China in 2023,” said Kevin Rudd, president of the Asia Society and a former prime minister of Australia.
Those eager to sound an upbeat message also point to a warmer winter in Europe, which is easing fears of an energy supply crunch, and growing confidence that inflation in the United States has peaked.
“I think the economy has been surprising us quarter after quarter,” Mário Centeno, a member of the European Central Bank’s governing council, said Tuesday of the situation in Europe. “Maybe we will be surprised also in the first half of the year.”
Averting a global recession is not a done deal, however.
In addition to uncertainty over exactly how China’s reopening will play out, questions remain about how high central banks will raise interest rates, how long they will keep them there and the extent to which economies like the United States will slow as a result.
Russia’s war in Ukraine is another ongoing source of volatility. A European ban on Russian diesel comes into force next month, threatening to keep prices for the vital fuel at extraordinarily high levels.
And while inflation is coming down, Christian Ulbrich, the CEO of commercial real estate giant JLL, told CNN that he’s worried about where it will settle — especially given the trend toward bringing supply chains closer to home, which could lower companies’ exposure to geopolitical risks but add to their costs.
If inflation remains stuck between 4% and 7%, it will be “painful for many industries,” he said.
The World Bank warned earlier this month that any fresh shock — such as a surprise uptick in inflation or a central bank policy mistake — would likely unleash the second downturn this decade.
— Juliana Liu contributed reporting.