According to the Wall Street Journal, China’s economic downturn will likely affect some multinational companies and commodity producers in the coming years, casting doubt over the global economy’s recovery from the COVID-19 outbreak. However, economists believe the potential benefit could be a diminished global inflationary pressure.

As mentioned in a report by Reuters, the International Monetary Fund expects China’s economic growth to be 4.8% in 2022 and 5.2% in 2023, which is 0.8% lower than the annual growth rate of 8.1% in the period of 2014 to 2019, and lower than the People’s Bank of China’s claim of 5.1% to 5.7% in the five-year period to 2025. The impact of China’s downturn, on the other hand, will be offset. 

According to Louis Kuijs, former head of Asian economics at Oxford Economics, a slowdown in China might have the most significant impact on commodities producers, particularly in emerging economies that depend on Chinese demand. Iron ore prices, for example, have dropped more than 50% since July due to concerns about Chinese demand. China imports iron ore mainly from Australia and Brazil. More than half of the world’s steel is produced by these nations. 

According to Mark Williams, senior Asia economist at Oxford Economics, the impact of China’s economic downturn on overall U.S. growth will be limited due to the country’s current economic strength, but it will lower revenue for U.S. enterprises that depend on the Chinese market.

Procter & Gamble executives said that the company’s sales in China have grown rapidly in the past four or five years, but it turned flat in the fourth quarter. Tod Carpenter, CEO of Donaldson, a filtration system manufacturer, said he noticed “very strong new order activity” driven by industrial and engine-related firms in the United States, but China remains sluggish. 

Europe’s economy is also affected by China’s economic slowdown. According to Volkswagen Germany, sales in China plummeted by 37% in the fourth quarter compared to the same period in 2020, while it was better in North America. Germany’s overall economy slowed dramatically in the fourth quarter. Economists believe it was driven down by the downturn in China, its biggest trading partner, as a factor. 

Experts have indicated that China’s slowdown means reducing a source of inflation. Frederic Neumann, co-head of HSBC Asian economic research, said that “If China’s economy is buoyant, it will tighten a global supply chain that is already unable to meet Western demand for semiconductors and other commodities, which in turn will push prices even higher” and that “a slowdown in China will remove some of the inflationary pressure.”

However, according to the research, China’s role in restraining inflation is unclear. If Omicron spreads further, which results in additional blockade measures in China, the price of Chinese exports could rise. The Organization for Economic Cooperation and Development estimates that 0.7 % would lower global GDP growth as China’s export prices increase by 10% owing to supply issues.

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