Energy crisis fuels economic recovery concerns

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Rising energy costs - crisis

From Beijing to Delhi, authorities have been scrambling to fill a vast power supply gap on Tuesday (Oct 12), triggering global stock and bond market unrest, with worries that rising energy costs will stoke inflation and prohibit an economic recovery.

Recent weeks have seen record highs in power prices, driven by shortages across Asia and Europe with the energy crisis in China forecast to continue through to the end of 2021, halting growth across the world’s second-largest economy and top exporter.

According the Reuters, “China on Tuesday took its boldest step in a decades-long power sector reform, saying it will allow coal-fired power plants to pass on the high costs of generation to some end-users via market-driven electricity prices.”

Power supply and manufacturing crunches are appearing in multiple markets from Tokyo to London, creating an intensifying unrest across the globe, highlighting the difficulty in cutting the world’s dependency on polluting fossil fuels.

There was a mass sell-off in global stocks and bonds, which “continued through to yesterday, taking short-dated U.S. Treasury yields to 18-month highs, while world stocks fell for a third straight day on fears that energy prices were putting a dampener on economic growth,” Reuters state.

New data on Tuesday showed Japanese wholesale inflation hit 13-year highs last month, with shoppers across Britain slashing their spending and China recorded a 20% drop in car sales.

The International Monetary Fund cut growth outlooks for the United States and other major industrial powers citing persistent supply chain disruptions and pricing pressures.

China has been enforcing their latest measures to manage the power crisis, including persuading coal miners to boost output and manage electricity demand at industrial plants to help control record-high coal prices.

The world’s second largest coal producer, India, has asked power producers to import up to 10% of their coal needs and has warned states that their power supplies will be curbed if found selling electricity on power exchanges to cash in on the price increase. A surge in the demand for power has meant that state-run coal supplies across India are no longer sufficient.

The Indian power ministry said it had directed power companies to boost supply to the capital Delhi, whose chief minister has warned of a potential power crisis.

Source: Reuters

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