China’s Zero-Covid Policy Uncertainty Will Drive Commodities Markets

Must Read

Commodity markets will remain uncertain in 2023 due to China’s easing of its zero-Covid policy. A full re-opening of China’s economy would provide a significant upside to commodities prices by increasing demand from both domestic and international firms.

Recent developments suggest that China’s zero-Covid policy may be more flexible than initially thought, with a gradual move away from the policy becoming increasingly apparent.

Commodities Markets

The weakening economic sentiment of the world economy in 2023, with global GDP projected to grow by only 1.4%, as well as flat US and Eurozone GDP growth, will create a significant headwind for commodities demand. This is particularly true for China, whose zero-Covid policy was initially seen as an obstacle to the use of commodities, with economists forecasting that it would lead to a decline in demand.

Despite the economic slowdown in 2023, projected to cause a dip in commodity demand, the global oil market will likely remain tight due to the steady balancing of supply and demand by OPEC+ countries.

China’s zero-Covid policy

Moreover, many analysts expect a surge in oil demand once China’s zero-Covid policy is fully eased and international travel resumes. Analysts believe that a full re-opening of China’s economy could provide a significant upside to commodity prices by increasing demand from domestic and international firms.

This is expected to be particularly beneficial to oil markets, which will likely benefit from an increase in air travel and transportation needs within China and outside of it when international trade resumes.

“The realisation that China will be back online and producing products will help bring down inflation, and that’s a good thing. If inflation can come down, the Fed can step aside and pause,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

While a weak global economic outlook will affect commodity demand in 2023, OPEC+’s commitment to balancing the oil market will likely keep prices stable over the next few years. This is especially true given China’s potential removal of its zero-Covid policy, which would significantly increase overall commodity demand.

- Advertisement -spot_img
Latest News
- Advertisement -spot_img

More Articles Like This

- Advertisement -spot_img