Barclays lowers outlook for China’s GDP after forecasting recession in US and Europe


China’s export growth has slowed in recent months following a global surge during the height of the pandemic. Pictured here is a wind turbine blade being loaded onto a cargo ship in Yantai Port on November 1, 2022.

Vcg | Visual China Group | Getty Images

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

The company’s US and European economic teams are forecasting recessions for next year, Hong Kong-based Barclays’ Jian Chang and Yingke Zhou said in a report Wednesday.

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

“China’s share of global exports is shrinking this year,” the analysts said. “Foreign companies are said to have moved their orders from China to their Asian neighbors, including Vietnam, Malaysia, Bangladesh and India, for the production of a number of important labour-intensive goods.”

Exports remain a major driver of the Chinese economy, especially as the pandemic disrupted global supply chains and created high demand for health products and electronics.

Chinese exports rose 29.8% in US dollars last year, after rising 3.6% in 2020, customs said.

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

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

Towing real estate

Barclays’ new forecast of China’s GDP for 2023 of 3.8% comes after its cut to 4.5% in September due to falling real estate investment.

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

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China’s real estate sector and related industries contribute about a quarter of its GDP. The real estate market has slumped over the past two years as Beijing cracked down on developers’ high reliance on debt for growth, while consumer demand for home buying has plummeted.

Strict Covid controls have curbed consumer confidence in general, and hopes China would ease restrictions soon helped propel a rally in equities this week. Beijing has not yet made an official announcement about changes to its “dynamic zero-covid policy”.

High household debt

Even if the country were to reopen fully, Barclays analysts said they remain cautious about how much China’s consumption and services sectors could recover as a result of rising household debt.

In fact, their analysis found that the ratio of Chinese household debt to disposable income was higher in recent years than in the US in the years leading up to the 2008 financial crisis.

“Our baseline forecast assumes no major stimulus announcement, at least before the Central Economic Work Conference in December, when the newly formed government will outline its policy priorities,” the Barclays report said.

As of the third quarter, official data shows that the Chinese economy has grown by 3% so far.

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

Other banks lower forecasts for 2023

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

Nomura lowered his forecast from 5.1% to 4.3%. Chief China economist Ting Lu noted the impact of Covid, weaker exports, slow real estate recovery and a weaker car market following the surge in passenger car sales this year.

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

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