CHINA WILL NOT be immune from the global economic impacts of the Ukraine crisis.
Higher prices for energy and food and metals commodities — Russia and Ukraine are significant producers of all three — will raise inflation, providing a drag on real GDP growth. Almost certain recessions in Ukraine and Russia due to the fighting and sanctions, respectively, and an intensification of existing bottlenecks in global supply chains for raw and intermediate goods will exacerbate the impact.
It is too early to know the severity of these shocks, given their dependency on the outcome of the crisis. However, some scenario-based estimates are being made.
One set that crosses this Bystander’s desk comes from The Conference Board, a US business research organisation, which produced the chart above. Assuming an oil price averaging $125 a barrel in the second quarter of this year, The Conference Board estimates that China’s GDP growth for this year will be reduced by between point two and point five of a percentage point and by the same amount in 2023.
By comparison, the comparative numbers for the world economy are reductions of 0.4-0.9 percentage points and 0.1-0.3 percentage points, respectively.
Long-term energy contracts and the likelihood of buying more discounted Russian energy and agricultural commodities such as wheat that Moscow will not be able to sell into sanctioning markets will somewhat mitigate the impact on China. Nonetheless, the Conference Board is forecasting a 0.5-1.5 percentage points increase in year-on-year consumer price inflation in China for this year and a 0.1-0.8 percentage points increase in 2023.
Those will be unwelcome numbers for authorities already struggling to tame politically sensitive energy and food price rises.
The Ukraine crisis will add to the challenge of meeting the newly announced target of 5.5% GDP growth for this year. That was already looking ambitious. Headwinds from the real estate slump, the cost of the zero-Covid tolerance policy and the measures imposed by the United States to limit Chinese access to US capital, technology and intellectual property are already slowing the economy’s momentum.