CANBERRA – Australia expects a “substantial impact” on global supply chains from surging Covid-19 cases in China and is monitoring the situation “very closely”, Treasurer Jim Chalmers said. 

“We do expect there to be big pressure on the Chinese workforce, big pressure on supply chains,” he told Australian Broadcasting Corp in a radio interview on Wednesday. “As a consequence, that will flow through to the global economy and we won’t be immune from that either.” 

Coronavirus cases in China have soared after the country abandoned its strict zero-Covid protocols, letting the virus run rampant. It has prompted countries from the US to Australia to impose restrictions on Chinese travellers.

Australia’s biggest trading partner is China and the country is one of the world’s most China-exposed developed economies.

“We are monitoring very closely what’s happening with these supply chains which are impacted and will be impacted by this Covid wave,” Mr Chalmers said. “We haven’t put a dollar figure on it. We expect it will be a substantial impact but that full impact is unclear.”

China’s Covid-19 wave will not be the only risk for the world economy this year, he said, predicting that 2023 will be “difficult”. 

A raging war in Ukraine, fears of a world recession led by the US, rising interest rates at home and globally, and extreme weather events will prove “big determinants of how our economy fares in 2023”, Mr Chalmers said.

Economists expect Australia’s A$2.2 trillion (S$2 trillion) economy to buck the global trend and dodge a recession even as the country’s central bank pushes interest rates to a decade high of 3.1 per cent to combat rising inflation.

The Reserve Bank has signalled further hikes are likely in 2023. BLOOMBERG