China to charge up economic recovery, say economists

A resurgent Chinese economy following the end of its Covid-zero policy will shield Australia from a potential global recession this year, leading economists say.

Chinese Vice-Premier Liu He speaks at the World Economic Forum annual meeting in Davos in Switzerland. Picture: AFP

A resurgent Chinese economy following the end of its Covid-zero policy will shield Australia from a potential global recession this year, leading economists say, after Jim Chalmers warned that slowing growth in our largest trading partner was a “a major economic challenge”.

Data released this week revealed that lockdowns led to the stalling of China’s massive economy over the final three months of 2022, slowing growth through the year to 3 per cent – the weakest result in decades and against more than 8 per cent growth in 2021.

In response, the Treasurer said a weaker Chinese economy was “one of the major challenges facing Australia at the start of 2023”.

But Westpac senior international economist Elliot Clarke dismissed concerns that Australia’s economic recovery was now at risk from a newly fragile China.

“I don’t think we should be worried at all,” he said.

“Overall, the December data round supports our long-held view that China’s economy is well positioned to not only rebound from Covid-zero, but also to grow strongly into the medium-term, averaging growth of 5 per cent or more through 2022-24.

“With the UK, Europe and US all likely to experience recession or stagnation and weak recoveries during 2023 and 2024, China’s geopolitical and economic strength will continue to grow.”

As world leaders and chief executives of global companies congregate in Switzerland for the annual World Economic Forum dominated by talk of a severe slowdown across major advanced countries, the upbeat outlook for the Asian giant has been a clear outlier amid the gloom.

Speaking at the Swiss ski resort town of Davos overnight on Tuesday, Chinese Vice-Premier Liu He assured the assembled dignitaries that China was poised to return to pre-pandemic levels of growth as the country reopens to the world following its self-isolation. With the peak of Covid infections now behind it, Mr Liu said “we’re confident China’s growth will most likely return to its normal trend”.

Mr Clarke said Chinese investment in infrastructure projects had proceeded at pace through 2022, despite the restrictions, and that the return of residential building would further bolster demand for key Australian commodities, including iron ore and steelmaking coal.

“That also plays through to (Australia’s) fiscal bottom line, as tax revenues will be higher and alleviate the budget pressures facing the government,” he said.

Citi chief China economist Xiangrong Yu in a note to clients said that despite the weak fourth quarter GDP outcome, there had been a surprise rebound in retail sales and that the labour market had remained resilient. “Looking beyond 2022, (the) earlier-than-expected reopening could set the stage for earlier-than-expected recovery,” he said, adding that there was upside to his forecast for 5.3 per cent growth in 2023.

The sudden and almost complete removal of health restrictions in December sparked a massive wave of infections, with some local official estimates suggesting two thirds of the 1.4 billion population became infected in a matter of weeks.

Following such a seismic and decisive transition, Capital Economics’ Singapore-based senior China economist, Julian Evans-Pritchard, said it was hard to see how Chinese policymakers could return to last year’s draconian health measures: “I think ‘zero Covid’ is dead at this stage.”

Mr Evans-Pritchard said timely data already pointed to a solid rebound in activity in January, and that China’s economic performance in 2023 would be “very different” from the steep slowdown in 2022.

“I actually think that Chinese demand for Australian commodity exports will increase further this year,” he said.