Barclays cuts China GDP outlook after forecasting U.S., Europe recession

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November 4, 2022
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China’s export growth has slowed in recent months after surging during the height of the pandemic globally. Pictured here is a wind turbine blade being loaded onto a cargo ship at Yantai Port on Nov.1, 2022.

Vcg | Visual China Group | Getty Images

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

The firm’s U.S. and European economics teams forecast recessions next year, Barclays’ Hong Kong-based Jian Chang and Yingke Zhou said in a report Wednesday.

As a result, they now expect China’s exports to drop by 2% to 5% in 2023, versus previous expectations for 1% growth, the report said.

“China’s share of global exports has been shrinking this year,” the analysts said. “Foreign companies are seen to have shifted their orders away 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 when the pandemic disrupted global supply chains and generated intense demand for health products and electronics.

China’s exports surged by 29.8% last year in U.S. dollar terms, following a 3.6% increase in 2020, according to the customs agency.

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

The last time China’s exports fell was in 2016, customs data showed.

Real estate drag

Barclays’ new 2023 China GDP forecast of 3.8% comes after cutting it to 4.5% in September on falling property investment.

The analysts’ latest GDP cut includes expectations for a steeper drop in real estate investment, of 8% to 10%, versus previous forecasts for a low-single-digit decline.

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China’s real estate sector and related industries contribute to roughly a quarter of GDP. The property market slumped in the last two years as Beijing cracked down on developers’ high reliance on debt for growth, while consumer demand for buying houses has plunged.

Stringent Covid controls have restricted consumer sentiment overall, and hopes that China would soon relax the restrictions helped propel a rally in stocks this week. Beijing has yet to make any official announcement about changes to its “dynamic zero-Covid policy.”

High household debt

Even if the country fully reopened, the Barclays analysts said they remain cautious about how much the consumption and services sectors can recover in China due to rising household debt.

In fact, their analysis found the ratio of Chinese household debt to disposable income has in the last few years surpassed that seen in the U.S. in the years leading up to the 2008 financial crisis.

“Our base case forecast assumes no big stimulus announcement, at least before the December Central Economic Work Conference, when the newly composed administration will set out its policy priorities,” the Barclays report said.

As of the third quarter, official data show China’s economy has grown by 3% for the year so far.

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

Other banks cut 2023 forecasts

In the last few months, other analysts have cut their forecasts for China’s GDP next year.

Nomura cut its forecast to 4.3%, from 5.1%. Chief China economist Ting Lu noted the impact of Covid, weaker exports, slow recovery in property and a softer auto market after this year’s surge in passenger car sales.

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