China’s short sharp Covid-19 disruption worth the risk

China’s decision to let Covid-19 work its way through the economy as quickly as possible is ultimately good news for Australia, according to KPMG chief economist Brendan Rynne.

A patient is wheeled on a gurney into a busy infectious diseases clinic at a hospital on January 2 in Beijing, China. Picture: Getty Images

China’s decision to “rip off the Band-Aid” and let Covid-19 work its way through the economy as quickly as possible is ultimately good news for Australia, according to KPMG chief economist Brendan Rynne.

He said on Wednesday that the Chinese approach would cause a short sharp disruption, but then allow the economy to move on and likely be “stronger in the back half of the year than the front half of the year”.

This would be good for Australia, given the improvement in our geopolitical relationship with China.

“They are going to experience a tough, tough health environment for the next little while (but) they’re going to allow Covid to get its way through the economy and the population to continue to move on … what they’re doing (is minimising) the length of disruption in the Chinese economy by allowing it to work its way through as quickly as possible.”

Dr Rynne also played down concerns about disruption to supply chains, saying: “Australian firms, in the last GDP data, have started to build their interim inventory stocks back up. So while we might be dealing with some disruption as (China) works through the Covid outbreak, I would hope that inventory build-up and that change in philosophy is going to enable a limited disruption, at least in the short term.”

KPMG chair Alison Kitchen said Australian firms had had two years of Covid-19 to build better flexibility into their supply chain, and tap into a wider range of sources for products.

“It’s not necessarily going to get dramatically more challenging for us here,” she said. “We’re pretty agile in the current environment. We’ve got more agile as a country. We’ve built alternative supply sources.”