Goldman Sachs cuts its China GDP forecast for 2021, warning the economy’s energy crunch is yet another growth shock

A worker works on an assembly line at an automobile manufacturing factory in Qingzhou, East China's Shandong Province, Sept. 28, 2021
  • Goldman Sachs lowered its 2021 GDP growth forecast for China to 7.8% from 8.2%, blaming energy constraints.
  • Pressure to meet environmental targets has affected 44% of China’s industrial activity, its economists said.
  • Evergrande-related risks to the property sector and regulatory clampdowns are other headwinds to the economy.
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Goldman Sachs has lowered its outlook for China’s economic growth in 2021, saying environment-focused curbs on energy consumption could pose “yet another growth shock” on top of the pandemic’s impact.

Economists at the Wall Street bank now forecast growth of 7.8% for the country’s gross domestic product year-on-year, down from the 8.2% expansion they previously expected.

“A relatively new, but tightening, constraint on growth comes from increased regulatory pressure to meet environmental targets for energy consumption and energy intensity,” the economists wrote in a report released Tuesday.

China aims to reach carbon neutrality before 2060, and to have carbon emissions hit their peak and decline before 2030. Increased pressure on Chinese provinces to meet these targets has led to curbs on usage, including scheduled power cuts, that have driven down factory production.

Suppliers to Apple and Tesla are among those affected, according to Reuters. Goldman estimates that 44% of China’s industrial activity has been hit by the cutbacks.

The economy was already grappling with the impact of restrictions brought in to quell outbreaks of the Delta coronavirus variant, the Goldman team noted, as well as regulatory clampdowns across several key industries.

“The peculiar nature of the COVID shock has made the economy more energy-intensive, at least temporarily,” they said, noting that an export boom has boosted demand for power from manufacturing industries.

“Meanwhile, efforts to reduce coal-fired related emissions and a reduction in coal imports have affected supply levels at least on the margin, contributing to a sharp increase in price,” the Goldman team said.

Evergrande’s debt crisis and related risks to the broader Chinese property sector are weighing on property sales and construction, adding to growth constraints, they noted.

Goldman’s team expects China’s economy to grow 4.8% in the third quarter and 3.2% in the fourth quarter compared with a year earlier, down from prior forecasts of 5.1% and 4.1%, respectively. China said its GDP grew 7.9% year-on-year in the April-to-June quarter this year.

Nomura and Fitch have also cut their forecasts for China’s overall GDP growth this year.

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