Barclays cuts China’s GDP after forecasting recession in US and Europe

Chinese export growth has slowed in recent months after surging at the height of the pandemic around the world. Pictured is a wind turbine blade being loaded onto a cargo ship at Yantai Port on November 1, 2022.

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BEIJING — Barclays cut its forecast for China’s economic growth next year to 3.8%, partly on expectations of lower global demand for Chinese goods.

The company’s US and European economics teams predict recessions next year, Hong Kong-based Barclays’ Jian Chang and Yingke Zhou said in a report on Wednesday.

As a result, they now expect Chinese exports to fall 2% to 5% in 2023, compared to previous expectations of 1% growth, according to the report.

“China’s share of global exports has declined this year,” analysts said. “Foreign companies appear to have shifted their orders from China to its Asian neighbors, including Vietnam, Malaysia, Bangladesh and India, for the production of some key labor-intensive goods.”

Exports remain an important driver of China’s economy, especially as the pandemic has disrupted global supply chains and generated intense demand for healthcare and electronics products.

Chinese exports jumped 29.8% last year in U.S. dollars, following a 3.6% increase in 2020, according to the customs agency.

However, the pace of growth has slowed this year. In September, year-to-date export growth was 12.5%.

The last time Chinese exports fell was in 2016, according to customs data.

Real estate train

Barclays’ new Chinese GDP forecast for 2023 of 3.8% comes after cutting it to 4.5% in September due to falling real estate investment.

Analysts’ latest GDP decline includes expectations for a steeper decline in real estate investment, of 8% to 10%, compared to previous forecasts of a single-digit decline.

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China’s real estate sector and related industries contribute about a quarter of GDP. The housing market has slumped over the past two years as Beijing has clamped down on developers’ heavy reliance on debt for growth, while consumer demand for home purchases has plunged.

Tight Covid controls have restrained consumer sentiment overall, and hopes that China will soon ease restrictions helped propel a rally in stocks this week. Beijing has yet to make an official announcement regarding changes to its “dynamic zero-Covid policy”.

High household debt

Even if the country reopens fully, Barclays analysts said they remain cautious about the extent of the recovery in China’s consumer and service sectors due to rising household debt.

In fact, their analysis found that China’s household debt-to-disposable income ratio has in recent years surpassed that seen in the United States in the years leading up to the 2008 financial crisis.

“Our base case assumes no major stimulus announcements, at least before the Central Economic Work Conference in December, when the new administration sets its policy priorities,” the Barclays report said.

In the third quarter, official data shows China’s economy grew 3% for the year so far.

That’s below the official target of around 5.5%, but close to lower investment bankers’ expectations for 2022.

Other banks are cutting their forecasts for 2023

In recent months, other analysts have lowered their forecasts for China’s GDP for next year.

Nomura lowered its forecast to 4.3% from 5.1%. China’s chief economist Ting Lu noted the impact of Covid, weaker exports, a slow recovery in real estate and a weaker car market after passenger car sales surged this year.

In September, Goldman Sachs cut its 2023 GDP growth forecast to 4.5% from 5.3%, “given the delayed rebound from China’s reopening.”

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