Soaring Covid cases set to hurt China’s oil demand in 2023

Soaring Covid cases set to hurt China’s oil demand in 2023
Soaring Covid cases set to hurt China’s oil demand in 2023

Oil demand in China could be very weak at the start of the year, as manufacturing activity in the world’s largest crude oil importer plunged the most since the early days of the pandemic in February 2020, amid soaring Covid cases after China abandoned its “zero Covid” policy.

China’s Purchasing Managers’ Index (PMI) fell to 47.0 in December from 48.0 in November, according to data from the National Bureau of Statistics (NBS), which fell below economists’ expectations in a Reuters poll.

The index’s 50-point mark separates contraction from growth, with readings below 50 indicating contraction in activity. Thus, in December, Chinese manufacturing activity fell for a third consecutive month and the drop was the sharpest since the start of the pandemic in February 2020.

The reopening of China has led to an increase in the number of Covid infections and with weaker and less effective vaccination in the country, labor shortages and supply chain disruptions have started to appear .

China’s economy is off to a rocky start to 2023, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), told CBS’s Face the Nation program in an interview broadcast Sunday.

China’s reopening and subsequent spike in infections is “bad news” for the global economy in the near term, Georgieva said.

“For the next two months, it would be difficult for China, and the impact on Chinese growth would be negative. The impact on the region would be negative. The impact on global growth would be negative,” the IMF chief told CBS.

“China has slowed significantly in 2022 due to this strict zero COVID policy. For the first time in 40 years, China’s growth in 2022 is expected to be equal to or lower than global growth. This has never happened before. And looking at the next year for three, four, five, six months, the easing of COVID restrictions will mean bushfire COVID cases all over China,” Georgieva noted.

Oil prices rebounded on the last trading day of 2022, but despite volatility throughout last year, prices were only up 10% annually from 2021, due to China’s slowdown, fears of recessions and aggressive interest rate hikes by the Fed and other central banks.

By Tsvetana Paraskova for Oilprice.com

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