Goldman Sachs said in a note on Tuesday that energy shortages and deep industrial production curbs put significant downside pressures on China’s economy. As a result, the investment bank lowered China’s GDP growth forecast for 2021 from 8.2% to 7.8%. China’s strict environmental control, as well as energy supply constraints and soaring prices, have resulted in the power supply crunch, which forced factories to slash or suspend operations.
Goldman estimated that the power crisis had affected 44% of China’s industrial activity. In a separate report, Morgan Stanley reported that 7% of aluminium production capacity and 29% of cement production in China were impacted by the policy. Residential users, especially in northeast China, have also been affected, with authorities ordering them to limit the use of microwaves and water heaters to conserve power.
The power crunch came as additional pressure on China’s economy after the concerns around the future of China’s heavily indebted property giant Evergrande. Other forecasters have also downgraded the country’s growth outlook. Nomura cut China GDP growth forecasts from 5.1% to 4.7% for the third quarter of 2021 and from 4.4% to 3.0% for the fourth quarter. Nomura’s full-year 2021 forecast was lowered from 8.2% to 7.7%.
