Electricity Consumption Contracts In April, Pricing In Lower ‘Risk on’ Commodity Prices

• China Energy Administration showed on Monday that electricity consumption, which is used as a proxy for domestic economic growth by some analysts, contracted by 1.3% YoY in April after a sharp temporary spike recorded in February (seasonal effect).
• In the past year, the dramatic lockdown policies imposed by the Chinese government have been weighing on both the real economy and the financial activity.
• Even though officials still target a 5%-5.5% growth for 2022, sell-side firms have reviewed their forecasts significantly to the downside.
  • For instance, Citi recently downgraded China 2022 GDP growth forecast to 4.2% (from 5.1% previously).
• We have seen that ‘alternative growth measures’ such as the Li Keqiang Index or China electricity consumption have been pricing in slower growth in addition to lower commodity prices.
• The chart below shows the sharp deceleration in electricity consumption has been pricing in lower ‘risk on’ commodity prices such as copper.
• Copper prices have started to consolidate in recent months, down over 15% since early March, but still remains ‘expensive’ according to ‘leading indicators’ such as electricity consumption (or Li Keqiang, 10Y yield…).

Source: Bloomberg/MNI