China consumption to ‘recover strongly’ – S&P

Emerging markets that are exposed to China’s consumption will benefit the most from China’s rapid relaxation of its zero COVID-19 policy, according to ratings agency S&P Global.

In a new report, the agency said markets like Thailand and Vietnam, which take in large numbers of Chinese tourists, could particularly benefit as travel picks after following a long period with “virtually no outbound Chinese tourism”.

“We expect consumption activity to recover more strongly than investment because real estate fixed investment isn’t on a firm recovery path,” the report said.

“Emerging markets that typically benefit from greater demand for infrastructure-heavy industrial metals, such as South Africa, Brazil, Chile, and Peru, may see terms of trade improvements if the recent increase in commodity prices is sustained.

“However, the benefits to growth in those EMs will not materialize until China’s property market recovers more decisively and results in greater export volumes of metals, or prices remain high for a sustained period to fuel income growth.

“Greater mobility in China reduces the risk of port or manufacturing disruptions, which could be positive for EMs with significant manufacturing linkages with China.

“However, weakening demand in advanced economies, they key buyers of manufactured goods, is likely to prevent those benefits from fully materializing.”