China’s reopening and lower inflation to ease global economic slowdown in 2023

hina’s sudden abandonment of its almost three-year long zero-COVID policy, one of the most severe in the world, raised hopes of a restoration of global economic growth in 2023. The almost-complete lifting of domestic mobility restrictions in December 2022 and subsequent opening of its borders to international travel a month later have buoyed expectations of a stronger economic recovery in the country that will spill over to the rest of Asia and far beyond.

At the end of January 2023, the International Monetary Fund (IMF) revised the global economic growth upwards to 2.9% for 2023. It had in its annual World Economic Outlook (WEO) in October 2022 forecasted a steeper slowdown of 2.7% from an estimated 3.4% in 2022, 0.2 percentage points lower than the revised forecast. This however, is still lower than the average global economic growth of 3.8% before COVID-19.

While the world and advanced economies such as the United States and European Union are expected to experience significant slowdown in growth in 2023, from 2.7% in 2022 to just 1.2% in 2023, the emerging and developing economies are forecasted to continue to grow moderately in 2023, from 3.9% in 2022 to 4% in 2023.

In particular, growth in emerging and developing Asia is forecasted to increase to 5.3% and 5.2% in 2023 and 2024, led by China’s strong recovery of 5.2% after a worse-than-expected 4.3% growth in 2022. During this time, the country suffered the aftermath of prolonged lockdowns in major cities such as Beijing, Shanghai and Shenzhen that resulted in unprecedented public protests.

China’s growth in 2024 is projected to fall to 4.5% and to below 4% as it faces “declining business dynamism and slow progress on structural reforms”, according to the WEO.Meanwhile, India’s growth is expected to fall from 6.8% in 2022 to 6.1% in 2023 and rise to 6.8% in 2024 on the back of strong domestic demand. Growth in the ASEAN-5 countries (Indonesia, Malaysia, Philippines, Singapore, Thailand) is projected to decline to 4.3% in 2023 and pick up to 4.7% in 2024.

Growth in the Middle East is projected to fall from 5.3% in 2022 to 3.2% in 2023, in particular due to slower-than-expected growth in Saudi Arabia, from 8.7% in 2022 to 2.6% in 2023, resulting from lower oil production in line with an agreement through OPEC+ (Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters).

Meanwhile, growth in Sub-Saharan Africa is projected to moderate to 3.8% in 2023 due to the effects of the COVID-19 pandemic, and increase to 4.1% in 2024. While Nigeria’s growth is expected to improve as it “takes measures to address insecurity issues in the oil sector” (IMF), South Africa’s growth is expected to halve to 1.2% as a result of weaker external demand, power shortages, and structural constraints.

The global economy is expected to continue to face uncertainties and disruptions from the effects of inflation and rising interest rates, and geo-political conflicts from the year-long war in Ukraine. Increasing friction between China and US, with the latter more openly seeing the former as its strategic rival, is further exacerbating not just the situation in the Taiwan Straits but trade relations and exchange of technology between the two.

A resurgence of COVID-19 in China may also potentially scupper its recovery, which will also impact global growth. Meanwhile, global inflation is forecasted to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024—above pre-pandemic levels of about 3.5%.