The new “normal” of China’s economy after Covid-19 and its impact on trading partners: the case of Italy

Abstract Since the outset of the Covid-19 pandemic, China has experienced lower GDP growth. The present article follows the stream in economic literature according to which China has entered a structural slowdown permanently reducing its growth rates with subsequent effects on the Asian region. By means of a dynamic panel model, the article assesses the impact of a slowdown in the Chinese economy on the GDP growth rates of emerging Asia countries. Given the relative importance of exports to Asia for Italy, we quantify the export loss for it by estimating the elasticity of Italian exports to Asian GDP growth through a standard gravity model for bilateral trade. The results show that, on average, the impact of a 1% point (pp) reduction in China’s real GDP growth on that of the selected Asian countries is equal to -0.35 pp. This effect increases by 0.01 pp for every 1 pp increase in the share of goods exported to China. Additionally, we find that the potential export loss for Italy in the selected economies would have amounted to almost USD 930 mln. if China’s growth had been 0.1 pp lower than actually recorded, with major losses concentrated in China itself (USD 639 mln.) and South Korea (USD 111 mln.).