Goldman Sachs cuts China’s GDP growth forecast amid energy crisis – .

Goldman Sachs cuts China’s GDP growth forecast amid energy crisis – .

Workers from Zhong Tian (Zenith) Steel Group Corporation in Changzhou, Jiangsu Province of China, May 12, 2016.
Kevin Frayer | Getty Images News | Getty Images
Goldman Sachs economists have downgraded their forecast for China’s economic growth in 2021 as the world’s second-largest economy faces “yet another growth shock” in the form of constraints on energy consumption.
The Wall Street banking giant now expects China’s GDP to grow 7.8% in 2021 from a year ago, which is lower than its previous forecast of an expansion of 8, 2% year-on-year. Goldman’s downgrade followed similar moves from Nomura and Fitch.

“A relatively new, but increasingly stringent, constraint on growth comes from increased regulatory pressure to meet environmental targets for energy use and energy intensity,” economists said in a report released Tuesday.

Chinese President Xi Jinping announced in September last year that China aims to peak carbon emissions by 2030 and become carbon neutral by 2060. This launched national and local plans aimed at reducing the production of coal and other high carbon processes.

Hit when leaving the factory

Efforts to reduce emissions and a shortage of coal supplies have caused power shortages across China that have halted production at factories, including those supplying Apple and Tesla, Reuters reported.
“The special nature of the Covid shock has made the economy more energy intensive, at least temporarily,” Goldman economists said, explaining that an export boom following the pandemic has increased demand for electricity from manufacturers.

“Meanwhile, efforts to reduce coal-related emissions and a reduction in coal imports have affected supply levels at least marginally, contributing to a sharp increase in prices,” they added.

Goldman said production cuts at manufacturers and less tax support mean China’s economy will grow at a slower pace in the third and fourth quarters of this year.

The bank expects China’s economy to grow 4.8% in the third quarter of 2021 compared to a year ago, and 3.2% in the fourth quarter. Previously, Goldman’s forecast was 5.1% and 4.1% for the third and fourth quarters, respectively.

China said its economy grew 7.9% year-on-year in the second quarter of this year.

Impact on Asia-Pacific

Growing uncertainty in the Chinese economy will affect the outlook for economic growth in Asia-Pacific, rating agency S&P Global Ratings said on Tuesday.

The agency lowered its 2021 growth forecast for China to 8% from 8.3%. It also reduced its growth projection for Asia-Pacific to 6.7% for this year, from 7.5% previously.

“There is a growing downside and risk associated with changing China’s growth trajectory,” Paul Gruenwald, chief global economist for S&P Global Ratings, said in a report.

The persistent waves of Covid have also weakened the region’s economic outlook, the agency said. But vaccination rates have increased as countries have become more tolerant of new outbreaks of Covid – which will allow economies to gradually open up, he added.

– CNBC’s Evelyn Cheng contributed to this report.


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