Aegon AM’s Gettinby says Chinese New Year could bring an inflation spike

by | Jan 23, 2023

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Inflation could spike as China enters the Year of the Rabbit and the economy reopens, according to Gareth Gettinby, multi-asset investment manager at Aegon Asset Management.

With the easing of Covid restrictions China could see an economic rebound from the doldrums of 2022, but faster growth could come with a dose of inflation, Gettinby believes.

“Astrologists predict it will be a year of hope as the rabbit is a symbol of longevity, peace and prosperity in Chinese culture,” he says. “The prospect of a better year ahead is certainly something investors in the region will be hoping for.”


“At the end of last year, Chinese authorities offered hope for growth by terminating its three years of zero-Covid restrictions, leading economists to increase their GDP forecasts, with China likely to be the only major economy to grow faster in 2023 than in 2022.”

However, while the Chinese Government itself could upgrade its economic forecasts at the National People’s Congress in March, Gettinby says it will be careful not to set too ambitious a target while Covid-19 issues persist.

“The government may decide to set a growth target of 5% for 2023 – ambitious enough to boost confidence, particularly when growth is deteriorating in many regions, but also realistic to avoid two consecutive years of growth disappointment.”


While the faster-than-expected easing of restrictions will initially be disruptive to the recovery, Gettinby says the Chinese economy should accelerate in the second quarter of the year, especially if the current wave of infections subsides. But even though the property market may take longer to recover than after the initial Covid-19 shock in 2020, he says reopening the Chinese economy is likely to come with side effects, such as a potential spike in inflation.

“Many economies around the world have had to deal with spiralling inflation throughout 2022, albeit China is the outlier with the most recent consumer price index in December rising a mere 1.8% (year-on-year),” he says. “As China advances the easing of Covid restrictions, inflation will potentially accelerate due to pent-up demand and government growth policies.

“It could easily accelerate beyond the official target of 3% in 2023, similar to what happened in other major economies after reopening. Chinese households are cash rich, demand will be tilted towards consumption, and a decent rebound in retail sales is likely. There are already signs of this pent-up demand as bookings for international travel have surged.


“China re-opening will undoubtedly cause higher inflation, and many western central bankers will be wary of this. However, the impact of China re-opening should have limited impact on global inflation. Whilst there will also be a need for more energy from China, Chinese imports of oil and LNG are already back to pre-pandemic levels.

“China is a large consumer of commodities and there has already been a surge in iron ore, up over 40% since bottoming in late October 2022. Any further resurgence in commodities will depend heavily on how China stimulates the economy, and it is somehow difficult to envisage a resurgence in construction in the short term, which should limit commodity upside.

“Ultimately the speed of easing of Covid restrictions has surprised many, and it seems China is prioritising growth above all else. In terms of prosperity at least, the Year of the Rabbit may well bring some welcome respite.”


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