China is powering through an epic wave of coronavirus infections, setting the stage for a rebound in consumer and business activity that could prevent the global economy from tumbling into recession.
In recent days, Wall Street analysts at firms such as Goldman Sachs and Capital Economics have upgraded their forecasts of Chinese growth, citing signs that the coronavirus outbreak is peaking sooner than expected.
The pace of China’s reopening, after the lifting of its draconian zero-covid policy last month, will shape the global outlook for growth and inflation. Stock prices for U.S. companies that serve the Chinese market, such as the casino operator Wynn Resorts, would benefit from a smooth rebound, as would American attractions that appeal to Chinese tourists.
Since early December, when the Chinese government abandoned its zealous lockdown strategy, the coronavirus has sickened tens of millions of people and overwhelmed hospitals. In Henan province, with more people than Germany, nearly 9 in 10 residents are sick, officials said last week.
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A critical test looms this month, when workers in coastal factories head back to their rural villages to celebrate the Lunar New Year, potentially igniting a second round of infections in areas where the medical system is less developed.
Despite the dangers, there are signs that the economy is stirring. Subway ridership in major cities is rapidly returning to normal. Consumers who accumulated savings while shut in their homes for much of the past year have money to spend. And the government is rolling out policies to support a rebound.
China’s ability to recover from nearly three years of self-imposed isolation “is very likely the single most important factor for global growth in 2023,” Kristalina Georgieva, the managing director of the International Monetary Fund, told reporters last week. “It matters tremendously.”
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Indeed, the global economy’s other main engines are far from firing on all cylinders. The U.S. economy, despite a strong end to 2022, will struggle this year as higher interest rates bite, according to the World Bank’s latest forecast. Europe is in recession, and Japan is projected to eke out just a 1 percent growth rate.
As for China, the World Bank forecasts growth of 4.4 percent this year, and some private estimates are even higher. Goldman predicts a 5.2 percent gain. “Evidence of a rapid China reopening is accumulating,” the investment bank said in a recent note to clients.
Still, it will take time for the Chinese to reestablish their pre-pandemic routines, including links to the outside world that the government severed in hopes of keeping the virus at bay. The next few months may bring a stop-and-go recovery before a more widespread resumption of activity in the spring, analysts said.
Even with a smooth Chinese reopening, the global economy faces a year of anemic growth, according to World Bank and IMF projections.
“It does provide a big impetus. But we’re not expecting China to have this huge growth surge and ride to the rest of the world’s rescue,” said Ben May, the director of global macro research for Oxford Economics in London.
Chinese policymakers are doing what they can to help. With domestic inflation low, the People’s Bank of China — unlike central banks elsewhere — cut rates last year and may cut them again. The government also has resumed lending to some major property developers, abandoning for now its efforts to trim the industry’s overall debt.