How China’s reopening may light fires across the global economy.
At the beginning of 2023, if we have certainty about anything, it’s how uncertain the path is for the global economy – unlike in 2021 or 2022, when the destination (higher inflation and higher rates) seemed clear to us.
Perhaps most underappreciated are the two-sided risks from China’s chaotic reopening. Views appear to have converged around how it will play out: near-term disruption followed by a potent post-Covid mini-boom in the second quarter of the year. Good news for China and good news for asset markets.
Maybe so. But much remains unclear about China’s Covid situation, let alone what will happen as normal economic life resumes. Neither economists nor epidemiologists have had a particularly impressive forecasting record over the past two years.
There is lots of emphasis on reopening, probably not enough on chaos. This month’s chart reveals the proportion of China’s unvaccinated elderly population and the shortfall in China’s healthcare system to look after those who become seriously ill.