Bearish Barclays economists foresee more trouble in China in their quarterly Global Outlook report
"Curb your enthusiasm" was the message from Barclays economists, who doubted how long China's recovery could be sustained, and warned of "significant" disruption risks in their quarterly Global Outlook report.
Christian Keller, head of economics research at Barclays, questioned how long China's rebound would last, saying he expected "further weakening activity" as underlying problems in the real estate market, and industry over-capacity propping up unsustainable employment levels, have not been addressed.
"Indeed," he said, "efforts to push growth higher through the traditional channels will leave the economy investment-dependent and leveraged, raising larger disruptions in the future… We think the capital outflows – and thus pressures on the renminbi – will resume in 2016."
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Ajay Rajadhyaksha, head of macro research, summed it up, saying "We suggest that investors keep some powder dry to take advantage of possible risk-off episodes, such as the China-linked sell-off we saw in August.”
But Barclays was bullish on oil, saying it had reached the bottom, and expected prices to firm into the second half of 2016, leading to some energy price inflation.
And the economists maintained a global recession remains unlikely, given the strong factors powering global consumers – low inflation, easy financial conditions and tighter labour markets. Rajadhyaksha added he did not believe a Fed rate hike would disrupt global economy too much.
However, Barclays economists agreed that the markets had not factored in a steep-enough rate hike, which they thought could go up as much as 100 basis points, as opposed to the 80 basis points, which has been priced into most market models.
But domestic consumer demand in the UK would continue to help insulate Britain from emerging market shocks.