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Nomura lowers China’s GDP forecast as power crisis slows growth


Workers at a factory in Yancheng, East Jiangsu Province, China, make adhesive tape for flexible printed circuits (FPCs) on September 15, 2021.

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BEIJING – Nimura’s chief Chinese economist, Ting Lu, cut his forecast for Chinese GDP growth this year as the plant closed to meet its carbon emissions target.

Lu said in a note on Friday, “Markets are now so confused by the collapse of the property sector that they can ignore Beijing’s unprecedented sanctions on energy consumption and energy intensity.

As a result, he expects China’s GDP to grow 7.7% this year, down from 8.2% previously forecast.

Chinese President Xi Jinping announced in September 2020 that China would reach its highest carbon emissions by 2030 and become carbon neutral by 2060. It has thwarted national and local plans to reduce coal and other carbon-heavy processing.

Meanwhile, concerns over the ability of Chinese-hit Chinese property giant Evergrand to stay afloat sparked global markets last week. According to Moody’s estimates released in late July, the real estate market with related industries such as construction accounts for more than a quarter of China’s GDP.

Fitch on Thursday lowered its growth forecast for China from 8.4% to 8.4% in anticipation of a slowdown in the property market putting pressure on domestic demand.

Other economists have not yet cut their 2021 China GDP forecast, but are looking at growing numbers in growth.

  • Macquarie’s chief Chinese economist, Larry Hu, said in an email Monday that his GDP estimate, set a year ago, is now at risk of a recession due to a property recession and declining productivity.
  • Bruce Pang, head of macro and strategy research at China’s Renaissance, said Monday that the company has not yet changed its GDP forecast of 8.4%. However, he said that a prolonged power shortage could lead to a downward correction of up to 8.25% or 8.3%, which would harm not only energy-dependent industrial production, but also local livelihoods and even services.
  • Francois Huang, a senior economist at Euler Hermes, a subsidiary of Allianz, said in an interview on Thursday that he maintains his GDP forecast of 8.2% for now, until he can be more clear about “how much”. [a] Downward reconsideration ”he has to do.

In March, the central government set a GDP growth target of more than 6% for the year. Analysts point out that policymakers are much more interested in speeding up the quality of economic growth.

“We believe that it is unrealistic to expect China to maintain high and stable growth because Beijing pushes both supply and demand enough,” Nomura’s Lu said in his report on Friday.

Power supply crisis

On the supply side, he pointed to a “game changer” in mid-August when the National Economic Planning Agency announced that the 20 regions had failed to meet the carbon-related target of about 0% of China’s GDP, prompting local authorities. Take action.

“In the context of demand push,” said Lu, “China’s recent Internet platforms, fintech, video games, off-campus tutoring, ride-hailing, data privacy, food delivery, crypto minor and e-cigarettes have been notable. The year could be particularly negative for Q3 and Q4 growth, as the entire sector is devastated. “

He downgraded the quarterly GDP forecast to 4.7% in the third quarter and 3% in the fourth quarter.

China’s official release on GDP for the third quarter is 1 18 October.

Spillover from Evergrand and real estate

Last year, the Chinese authorities sent shares of China Evergrand to indefinite developers in an effort to reduce high reliance on debt in the vast real estate sector. The company remained silent about paying 83 83 million in interest on its U.S. dollar-denominated debt, which was on Thursday. The firm has a grace period of 30 days.

If Evergrand’s problems induce a 10 percentage point slowdown in residential property activity, which could drag GDP growth to about 1 percentage point, Chetan Ahya, chief Asia economist at Morgan Stanley, said in a note on Sunday, quoting Robin Jing, the agency’s chief Chinese economist.

Ahiya added that the recession could lead to lower personal spending and lower property investment, which in turn reduces fixed asset investment in the manufacturing sector. “These spillover effects are putting downward pressure on growth, while at the same time energy intensity is impacting growth declines to meet targets,” Ahya said. “Regulatory resets are relying on corporate sentiment and costs are softening due to covid-related restrictions.”

If energy-intensive production constraints remain, Morgan Stanley analysts expect fourth-quarter GDP growth to fall to about 1 percentage point. Investment banks currently forecast 4.5% GDP growth in the third quarter from a year earlier and 4% slower in the fourth quarter.

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Policy support is expected

As negative factors are added, analysts expect the Chinese authorities to simplify policy and support growth.

“The government has not relaxed policies because the economic pressure is not high enough,” Zhui Zhang, chief economist at Pinpoint Asset Management, said in a note on Sunday. “In particular, the unemployment rate has been relatively stable, and export growth has also been strong. The government may think they can wait until the end of the year to relax policies.”

He noted that the MSCI China Index is not nearly as concerned about the difficult downturn in the Chinese economy overseas markets compared to the previous fall.

The decline in stocks this year has not affected the yuan exchange rate, Zhang said. “Over there [is] No sign of capital outflows, and gaps in offshore [yuan] The exchange rate and the coastal exchange rate did not expand. This shows that the current Evergrand incident has not caused panic in China’s macro economy in the international market. “

The MSCI China index has fallen more than 18% so far this year. It tracks shares of Chinese companies doing business in mainland, Hong Kong and the United States

The offshore-traded yuan has fallen about 0.66% so far this year. According to wind data, its interval with the coastal commercial yuan is in a measure of 0.043 yuan.



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