Based in part on predictions of a decline in global demand for Chinese goods, Barclays lowered its forecast for China’s economic growth to 3.8% for the coming year. Recessions are expected in the United States and Europe next year, according to reports published on Wednesday by Jian Chang and Yingke Zhou of Barclays in Hong Kong.

In contrast to earlier projections for 1% growth, they now anticipate a 2% to 5% decline in China’s exports in 2023, according to the report.

“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 continue to be a key component of China’s economy, particularly in light of the pandemic’s disruption of global supply chains and spike in demand for electronics and medical supplies.

According to the customs agency, China’s exports increased by 29.8% last year in U.S. dollar terms after increasing by 3.6% in 2020.

The rate of growth has slowed this year, though. Year-to-date export growth stood at 12.5% as of September.

According to customs data, China’s exports last experienced a decline in 2016.

The new 3.8% Barclays forecast for China’s GDP in 2023 follows a 4.5% reduction in September due to a decline in real estate investment.

Compared to earlier predictions of a low-single-digit decline, the analysts’ most recent GDP cut includes expectations for a steeper decline in real estate investment, of 8% to 10%.

A quarter of China’s GDP is made up of the real estate industry and its related industries. As Beijing cracked down on developers’ heavy reliance on debt for growth and consumer demand for home purchases plummeted, the real estate market collapsed over the past two years.

Consumer sentiment has generally been constrained by strict COVID controls, and this week’s stock rally was fueled by hopes that China would soon ease the restrictions. Beijing has not yet issued a formal statement regarding modifications to its “dynamic zero-Covid policy.”

The Barclays analysts said they remained cautious about how much the consumption and services sectors in China can recover even if the country fully reopened because of the rising household debt.

In fact, according to their analysis, the ratio of household debt in China to disposable income has recently surpassed that in the United States in the years preceding 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.

According to third-quarter official data, China’s economy has expanded by 3% so far this year.

That falls short of the stated goal of roughly 5.5% but is still close to the revised investment bank projections for 2022.

Other analysts have lowered their predictions for China’s GDP in 2019 over the past few months.

Nomura decreased its prediction from 5.1% to 4.3%. Ting Lu, the head economist for China, pointed out the effects of Covid, weaker exports, a sluggish real estate recovery, and a softening auto market following this year’s spike in passenger car sales.

Given the “delayed rebound from China reopening,” Goldman Sachs reduced its 2023 GDP growth forecast from 5.3% to 4.5% in September.

(Adapted from Reuters.com)

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