China’s economic growth could deteriorate sharply this year as the country engages in a bitter trade war with the United States, Barclays analysts said in a note, although Beijing is likely to increase its stimulus measures.
Barclays said China’s gross domestic product could fall between 1.5% and 3%, especially as U.S. President Donald Trump imposed cumulative 145% tariffs against the country.
China had retaliated by imposing 125% tariffs on American products.
Barclays said its estimates for China’s GDP took into account uncertainties over potential retaliation by Beijing, tariff reductions and fiscal stimulus in other U.S. trading partners, and the U.S. rolling back some tariffs. The White House had last week said electronics imports would be exempt from Trump’s 145% reciprocal tariffs, with the U.S. President clarifying that the move was temporary and that he will announce separate tariffs on electronics this week.
Barclays also flagged potential for collaborations and adjustments in bilateral trade between China and its other major trading partners.
The brokerage also flagged the potential for more fiscal stimulus in China, with ultra-long treasury bonds expected by summer. A particular point of focus will be China’s measures aimed at supporting household finances and spending.
Increased spending on China’s artificial intelligence efforts is also expected to help spur growth.
“While we expect the government to step up fiscal stimulus, we think the escalating trade war between China and the US will have a deflationary effect, given that downward pressure on exports would exacerbate China’s problems with overcapacity,” Barclays analysts wrote in a note.
China’s trade balance ballooned past expectations in March on stellar exports growth, as local manufacturers were seen front-loading U.S. shipments before the imposition of Trump’s tariffs.
Trade data for April is expected to provide a clearer picture on how Chinese trade will be impacted by a trade war with the United States.
Source: Investing