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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
“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.
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
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.
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.