FOCUS - Goldman and Chinese GDP estimates

The energy crisis and the collapse of real estate giant Evergrande weigh on China's growth estimates. Goldman Sachs cut the country's growth expectations, as did Nomura and Fitch. The Japanese bank also warned of the risks that the combination of these factors could create a contagion effect on a global scale. Goldman Sachs expects China's GDP to grow by +7.8% in 2021 and on an annual basis, compared to the +8.2% previously expected. In the third quarter, annual GDP is forecast at +4.8%, from 5.1% previously estimated. For the last three months of the year, the investment bank cut the rate to +3.2% from 4.1%.

After USA also China sees its growth estimates decrease.

The energy shortage is forcing the "factory of the world" to stop or slow production. A shutdown that couldn't come at a less appropriate time, just as the world economy is recovering from Covid-19 and needs the goods to meet demand. In addition to the energy crisis, the effort to reduce emissions is also weighing. Chinese President Xi Jinping announced in September last year that China aims to achieve "zero emissions" by 2060. This deadline has inevitably triggered national and local plans to reduce coal production.

BOTTLENECKS

With the factories at full capacity, it was already not possible to supply the markets with goods, the famous "bottlenecks" that have caused an increase in inflation. Imagine now, with factories in North East China forced to ration electricity and slow down production. The first effects are already evident: suppliers of Tesla and Apple, for example, have had to stop production for a few days.

SME INDICES BELOW 50

The Chinese economy, already grappling with the collapse of the real estate giant Evergrande, will be the first to suffer, and will probably have to cut its GDP estimates if the energy crisis is not resolved as soon as possible. It is no coincidence that, for the first time since the post-pandemic, China's manufacturing PMI unexpectedly fell to 49.6 points (against expectations of 50.1), signifying a shrinking economy. The increase in the price of natural gas, which today rises by 2%, is not a factor that can help to overcome this crisis because it causes a cascade increase in energy prices. And there are already those who are thinking, among the multinationals that had relocated to China, of moving their factories to other countries.

THE CAUSES

But what is the cause of the energy crunch that threatens to knock out the post-Covid-19 economic recovery? At the root of the energy crisis is a mix of two elements: coal shortages and Chinese government restrictions on emissions. To cope with the powerful post-pandemic recovery, many power producers have depleted available coal stocks earlier than expected. In addition, several provinces have cut back on the use of fossil raw materials to meet the government's emissions reduction target. A high-risk cocktail that is not only shutting down factories but also leaving millions of Chinese families in the dark.

... AND THE EUROPEAN UNION

The European "boom" narrative is also set to deflate soon. This graph shows how the Chinese and German economies are correlated. Usually, Chinese GDP trends are 3-4 months ahead of German GDP trends. So the Chinese recession is an advance on the German and European recession.

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