What Is the Impact of China's Reopening on Global Inflation?

China’s reopening will cause ripple effects of change around the globe, with impact on energy demand, inflation, and global growth.

Insights for What’s Ahead

• China’s economic recovery is expected to drive a large share of global growth in 2023. The economy is rebounding following nearly three years of lockdowns. Domestic demand is likely to drive the recovery, even as headwinds from the ongoing property market downturn and weak external demand constrain the strength of the rebound.
• Contrary to some theories, China’s reopening is not expected to dramatically lower global supply chain pressures. These pressures were already receding before China’s reopening due to slower growth in demand, particularly for goods. Furthermore, China’s services sector bore the brunt of the damage from the pandemic lockdowns over the last three years.
• However, China’s reopening could have significant inflationary effects on global energy markets. China is a large importer of oil, and even as the bulk of the recovery is in less-energy intensive service sector activities, a significant increase in Chinese oil demand in 2023 is expected.
• Global consumer price inflation may be 0.30 to 0.65 percentage point higher than current estimates due to China’s reopening. This depends on the strength of China’s reopening and subsequent oil demand.
• China’s reopening is expected to slow the disinflationary trajectory of the global economy. Increased inflationary pressures complicate monetary policy and may increase the risk of hard landings.