camila September 28, 2021

SHANGHAI (REUTERS) – Goldman Sachs has cut China’s economic growth forecast for 2021 to 7.8 per cent, from 8.2 per cent, as energy shortages and deep industrial output cuts add “significant downside pressures”, it said in a note on Tuesday (Sept 28).

The power supply crunch, brought about by environmental controls, supply constraints and soaring prices, has forced industries throughout the country to cut production, and left several provinces scrambling to guarantee electricity and heating for residents.

Goldman Sachs estimated that as much as 44 per cent of China’s industrial activity has been affected, leading to a 1-percentage point decline in annualised GDP growth in the third quarter, and a 2-percentage point cut from October to December, it said.

Nomura earlier cut its third and fourth-quarter China GDP growth forecasts to 4.7 per cent and 3.0 per cent, respectively, from 5.1 per cent and 4.4 per cent previously, and its full-year forecast to 7.7 per cent from 8.2 per cent.

“The power-supply shock in the world’s second-biggest economy and biggest manufacturer will ripple through and impact global markets,” analysts at Nomura said in a Sept 24 note, warning that global supplies of textiles, toys and machine parts could be affected.

Morgan Stanley analysts said production cuts, if prolonged, could knock 1 percentage point off China’s GDP growth in the fourth quarter.

China’s economy is already grappling with curbs on the property and tech sectors and concerns around the future of cash-strapped real estate giant China Evergrande.

“Considerable uncertainty remains with respect to the fourth quarter, with both upside and downside risks relating principally to the government’s approach to managing the Evergrande stresses, the strictness of environmental target enforcement and the degree of policy easing,” Goldman added.