Note from Goldman:
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. The NDRC issued ratings in mid-August showing nine provinces as performing poorly based on H1 energy usage, and reportedly intensified its efforts to bring underperformers into line in mid-September.
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 for the remainder of the year. Our initial estimate is roughly a 1 percentage-point annualized hit to Q3 GDP growth and double this impact on Q4 growth.
