![]() This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at March 9, 2023. “In the absence of meaningful news on the latter, we maintain our outlook for falling inflation and softening momentum in developed economies for the rest of 2023.” ![]() “But extrapolating another surge in inflation confuses the re-opening story with one of property sector stimulus. “China’s pivot from its zero-Covid strategy surprised everyone in its speed. Since WTO (Dec 2001), US (goods) CPI has effectively become China PPI “The latest data print points to producer prices still falling, implying that China is exporting deflationary forces,” she says. “It has had a particularly strong relationship with US consumer price inflation. “China’s own producer price inflation measure is usually a good gauge of the extent of inflationary pressure China can exert on the rest of the world. “The rally in key commodities like iron ore and copper, as well as mining stocks, have already largely priced in the China re-opening effect.”Ī lack of any concerted property stimulus should limit fears of China causing another inflation surge for the world economy. “We expect the Chinese property sector to stabilise this year, but not take off like in prior stimulus cycles. “This was due to announcements from Beijing addressing the need for property sector support alongside a broader economic re-opening, Xie Patrick explains. The local resource sector should benefit from China’s re-emergence, as demonstrated by a rally in resource stocks late last year and early this year. “But Chinese students will also refill some of the service sector casual labour supply, alleviating some of the upward pressure on wages.” Resource sector effects “For Australia, the return of Chinese tourists and students certainly has some potential to lift inflation through service prices and rents. But the return of Chinese visitors to Japan and South Korea is unlikely to significantly bump growth prospects this year.”įor countries further afield like the US, the effect of returning Chinese tourists are unlikely to be felt at all on the aggregate economy. ![]() “Thailand and Hong Kong stand to benefit the most from Chinese tourism. The impact will vary across countries –, says Xie Patrick. The most obvious effect from China’s re-opening is the return of its tourists and international students to the world. High frequency travel and box-office statistics reveal demand has already recovered to around 90 per cent of its pre-pandemic levels.”īut that shouldn’t fuel inflation concerns, since consumption-led recoveries are not import-thirsty recoveries, she says. “Hospitality and other consumer services should enjoy a nice year of strongly recovering demand, as they have already been doing during January and February. ![]() “Pent-up consumer demand will naturally channel into the long-forbidden pleasures of travel and leisure. ![]() “Like the economic re-opening experienced in other parts of the world, China’s re-opening will be consumer-led. “Where the restrictions had applied in China in 2022, they were far more draconian than most experienced in the West and so the bounce-back in activity should be greater. The resurgence in China’s PMIs mirror a rebound in economic activity felt in Australia and other countries when restrictive mobility policies were relaxed, Xie Patrick says. “We haven’t bought into the inflation resurgence view, and China’s U-turn on its zero-Covid strategy does little to change that.” China re-emergence unlikely to fuel inflation The likely outcome for the global economy is slowing momentum – somewhere between soft and no-landing, she says. Pendal’s Head of Income Strategies Amy Xie Patrick doesn’t believe so. Should investors adjust their portfolio settings? They argue that not only will US and global economy not enter a recession this year - but the things are running too hot, risking a resurgence in inflation. China’s PMI reached a decade high in February, prompting speculation of a ‘no landing’ scenario. ![]()
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