The endurance of the worldwide interconnected supply chains is being put to the test after two years of Covid and now Russia’s invasion of Ukraine.
With breakouts in several locations, China’s zero Covid approaches are being tested for the first time since the virus was initially found in the central city of Wuhan.
According to Bloomberg, the Chinese government recorded more than 5,000 new cases on Tuesday, the most since the outbreak began in Wuhan. The southern technology hubs of Shenzhen and Dongguan, which together cover 23 million people, and the northeastern province of Jilin, which has a comparable population, are already on the list of regions with stringent lockdowns.
When you factor in megacities like Shanghai and provincial capitals like Xi’an, substantial chunks of the economy have gone dormant. “A one-week lockdown of the affected districts may result in a 0.8 percentage point decline in GDP growth,” Wang claims.
However, Beijing, like Australia, is not taking things lightly. Wang claims that the government is considering a $2.5 trillion (A$500 billion) tax cut and rebate scheme to boost GDP.
There are certain advantages for Australian exporters in the meanwhile. When China’s economy falters, the government increases expenditure on roads, bridges, and other infrastructure, which boosts raw material demand.
This benefits commodity exporters like Australia, where higher iron ore or other material prices improve company earnings and help the government balance its books. Wheat harvest from the air at Moree, Australia.
As the Russian invasion has had an impact on Australia’s economy, fuel and food prices are expected to rise. According to Chris Richardson, a senior economist at Deloitte, each 10% increase in global coal and gas prices raises the tax take for Australian governments by roughly $2 billion. He goes on to say that if iron ore prices rise and stay up, the boost might be substantially bigger.