S&P: China’s abandoning COVID restrictions stimulates growth in outbound tourism, oil & metals prices

China’s earlier and speedier abandonment of stringent COVID policies should bring forward the growth impulse in emerging markets, especially through tourism channel, Report informs referring to S&P Global Ratings.

“The main beneficiaries are in emerging-market Asia, which had significant inflows of tourists from China pre-COVID. In Vietnam, Thailand, and Malaysia tourism from China previously constituted a sizable portion of GDP. Elsewhere, even in destinations where Chinese arrivals have grown to become a sizable share of the tourism market, their contribution to GDP is generally small,” reads the report.

“There could also be a positive net impact for emerging markets through the commodity price channel. The main beneficiaries will be the major commodity producers such as the Gulf countries (oil) and Latin America (metals and agricultural products). Chile and, to a lesser degree, Peru stand out given the importance of copper in their export share and, subsequently, the current account balance and GDP growth.

For other emerging markets commodity exporters, any improvement in terms of trade will only translate into stronger GDP growth if higher incomes result in more spending (versus saving). Our sense is that the revenue windfall will be a relief to external and fiscal pressures for many countries. China may need to see a more decisive improvement in its property sector for its reopening to help metals exporters in emerging markets. Meanwhile, higher oil prices will slow expected disinflation in 2023 at the margin, but not enough to shift the stance among central banks in emerging markets, which is to pause or even begin cutting this year.”

“China’s reopening will not repeat the massive 2008 stimulus that accelerated investment growth and commodity demand during the global financial crisis. This time, China’s recovery will be consumer and services led, with less spillover to the rest of the world.

High-frequency passenger road, subway and domestic air travel indicators are rising steadily. This is boosting consumption during the Lunar New Year holiday. Beyond the domestic consumption recovery, we also expect a pickup in outbound tourism, which will benefit neighboring countries. On the investment side we see less of an impact, although we expect property market activity to bottom out this year following a range of support measures in the past two months. But this will largely be a consumption led rebound, with modest demand spillover to the rest of the world.”

“We do expect some global impact, however, as is already reflected in commodity prices. Aviation fuel prices have begun to rise, and we see global oil potentially hitting $100 per barrel this year as the Chinese recovery builds. Industrial metals prices are also rising. These will result in positive terms of trade shocks for exporters of these commodities, many of which are emerging-market countries. This positive income shock will offset declining demand from the US and the eurozone, varying by country,” S&P added.