VIEW: Goldman Sachs Cut China GDP Projections

Goldman Sachs note that "recent sharp cuts to production in a range of high-energy-intensity industries add to the already significant downside pressures in the growth outlook. The production cuts are due primarily to increased regulatory pressure on provinces to meet energy use targets for 2021 but also reflect surging energy prices in some cases."

• "Based on the number of provinces (9 in NDRC 'red' classification) and share of industrial activity affected (we estimate 44%), as well as informed assumptions about the extent of the cutbacks, we estimated the hit to industrial production and overall economic activity in the remainder of the year."
• "We also adjust our fiscal deficit estimates to reflect a smaller augmented deficit for 2021 (11.0%, vs 11.6% previously), entirely accounted for by a lower deficit in the second half of the year. This trims our growth assumption by about 25bp in Q321 and 50bp in Q421, given a relatively low multiplier and typical lags."
• "Together, these adjustments bring our growth forecasts for Q321 to 0% Q/Q (4.8% Y/Y), for Q421 to 6.0% Q/Q (3.2% Y/Y), and for 2021 as a whole to 7.8% (down from 5.1%, 4.1%, and 8.2% Y/Y previously). Our 2022 real GDP growth forecast falls a tick to 5.5% Y/Y. Considerable uncertainty remains with respect to the fourth quarter, with both upside and downside risks relating principally to the government's approach to managing the Evergrande stresses, the strictness of environmental target enforcement and the degree of policy easing."