The Fall of China’s GDP Growth Forecast

Goldman Sachs, an American multinational investment bank, has recently become the latest of many investment firms to cut China’s growth forecast for 2021, following the recent energy shortage that the country has experienced. Only three days prior, Nomura, a Japanese finance company, similarly cut their forecast for China’s GDP growth, as well as the company Fitch, who did so due in relation to the property market.

Goldman Sachs had expected China to grow around 8.2% this year, however, this number has subsequently been reduced to 7.8% to reflect the impacts that the shortage will have. The BBC reports that Goldman Sachs has estimated that “44% of China’s industrial activity has been affected” by the energy shortage, resulting in manufacturers slowing down or even pausing their production. Goldman Sachs (CNBC) has said that “production cuts among manufactures and less fiscal support” will result in China’s economy growing at a “slower pace in the third and fourth quarters this year.”

Goldman Sachs has subsequently dropped the predicted forecast of the third quarter from 5.1% to 4.8%, based on their previous year-to-year data. Furthermore, they predict that the fourth quarter will be the toughest for China, seeing as their forecast of 4.1% has been downgraded to 3.2% — a reduction of almost a full per cent. These numbers compare unfavourably to the second quarter, which saw a 7.9% year-on-year growth.

Unfortunately, manufacturers weren’t the only ones struggling with the energy shortage, which was caused by environmental controls, supply restrictions, and increasing world prices, all of which trouble China’s energy generation greatly as the country still heavily relies on coal. The BBC reports that this shortage has additionally affected China’s largest port in the north, Tianjin, alongside many homes in the northeast, which have been experiencing “unannounced power cuts in the past few days.”

Furthermore, CNBC reports that the rating agency, S&P, suggests that the “rising uncertainty in the Chinese economy will affect economic growth prospects across Asia-Pacific,” showing how this dent in China’s upcoming economic growth can have a potentially detrimental domino effect across other countries.

This energy shortage has come at a tough time for China, as it recently endured some very strict regulations on certain industries, such as property and technology. Global chief economist for S&P Global Ratings, Paul Gruenwald, stated that “one downside and rising risk relates to a changing growth path in China.”

It is also vital to notice that COVID-19 has definitely weakened the region’s economic outlook, yet fortunately, its vaccination rates have increased and as of the end of August 2021, around 889 million Chinese citizens have been vaccinated, and around 2.044 billion doses have been given.


Written by Jade Andrew Research compiled by Billy Ryan


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