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Economists Warn of Inflation After China’s Reopening

Economists Warn of Inflation After China’s Reopening

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Policymakers and business leaders at the World Economic Forum in Davos this week expressed qualms about China’s economic reopening, although it might boost global growth. Generally, this is seen as one of the most crucial economic events this year, and the industry is understandably excited about new deals and prospects involving China, the world’s second-largest economy.

However, businesses also worry about what this will mean for the cost of living and inflation.

More expensive natural gas for European companies

The International Energy Agency has warned that companies in Europe will have to pay more for natural gas this year, because there will be more competition for it. One of the most significant challenges Europe faced last year was inflation, fueled mainly by higher energy bills.

Felix Sutter, president of the Swiss-Chinese Chamber of Commerce, said on a CNBC-moderated panel:

Chinese energy needs and raw material needs will compete with the European needs, the global needs, so I see inflation relaxation right now, [but] we will see more pressure on inflation in Q3.

Satish Shankar, managing partner for APAC at Bain & Company, said at the same panel:

I think China’s opening will increase consumption in global energy, it could cause some inflation.

The Fed will keep hiking rates

The US Federal Reserve will keep hiking interest rates if this happens, economists warned. The economy will backtrack on the progress made on inflation if the reopening drives sufficient demand to increase commodity prices to their levels in the spring of 2022.

Recovery is “better than expected”

China’s economic growth rate in 2022 was 3%, the second-lowest growth rate in almost half a century. However, shorter-term stats have resulted in expectations of a better-than-expected recovery. December industrial production and retail sales were better than anticipated.

Not everyone voiced pessimism. Rio Tinto CEO Jakob Stausholm told CNBC in Davos he was certain the reopening would help the world economy.