While central banks continue to prepare for gradual policy normalization, global growth momentum seems to be faltering. In this environment, bond yields are spiking and equity markets struggling. The outcome of the German elections suggests that forming a new government will be difficult, but for now the level of policy uncertainty looks manageable. In China new growth headwinds have emerged in the form of power rationing in energy-intensive sectors, this might exacerbate existing concerns about supply-side constraints and don’t just affect China. Maarten-Jan Bakkum, Senior Emerging Market Strategist at NN Investment Partners shares his insights on these matters in this week’s HouseView.
 Maarten-Jan Bakkum |
Maarten-Jan Bakkum:
‘’Our base-case scenario for Chinese growth remains rather positive as we expect a pick-up in growth in Q4 on the back of relaxed travel restrictions and new public investments in infrastructure. Power rationing in energy-intensive sectors is creating new risks for Chinese growth. The central government is forcing several local governments to reduce energy consumption to meet energy-saving goals. The biggest impact is on companies that produce energy-intensive products such as construction materials, but electricity supply for commercial and even household use is also being squeezed in some provinces. At this stage, however, it is difficult to estimate what the impact on growth and prices will be.
We know that the authorities are concerned about the growth outlook and that they want to prevent it from falling much below a headline rate of 5%. In fact, an important reason why local governments are not meeting their energy-saving targets is the strong growth in industrial activity linked to the Chinese export boom. This has led to sharp increases in energy consumption, but this cannot be fully blamed on local governments.
In the end, pragmatism is likely to prevail. But the central government wants to give a clear message to local governments, as it has to the large tech companies and real estate developers, that regulation is being tightened for good reason and that targets have to be met.’’
