According to The Economist, the fact that China let go of the zero-covid policy after three years is the most important economic event of 2023. Because, according to the reasoning, when China gets going again, global production will increase and containers be shipped again worldwide. “I’m early, but I tend to believe this call from the Economist.”
‘That economy hasn’t stopped for three years, but it has slowed down significantly due to the many lockdowns. Now China has effectively reopened overnight and this is a unique event, especially when it happens in such an important economy for the world,” says BNR in-house economist Han de Jong.
Explosion
The impact on the global economy can also be significant, thinks De Jong. Also for the Dutch economy and the high inflation that applies here. ‘In the short term, production in China will still be low because everyone will get sick, absenteeism in Chinese companies is now so high that it’s hard to believe. But if a kind of herd immunity is established in a few months and things really get going, there will be a kind of explosion in the demand and production of goods and services.’
And therefore also the demand for raw materials. ‘The price of oil is now around $80 for a barrel of Brent oil, I’m already seeing predictions that that price will go up to $100. But it could also be higher,’ says De Jong. “And that has a direct impact on our economy and on inflation.”
Central banks
According to De Jong, central banks know this too, but the question is whether the ECB and the Fed shouldn’t start arming themselves against it now. Both central banks have been raising interest rates for a while, while there is also talk of ending hikes or even cutting rates. With that in mind, it’s no surprise that the ECB and the Fed will continue to raise interest rates for some time to come. And they will indicate that the period of interest rate cuts is still far away.’
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The restart of the Chinese economy could also cause problems at home, thinks De Jong. “It’s not going to be a smooth process, especially indoors.” But production will eventually resume, container prices for shipping from China are now low and capacity is high. “So there seems to be enough capacity to accommodate a growing supply from China,” says Han de Jong.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
