Major Economies Slowing; Regional Power Outlook Deteriorating

BMI View : We have revised down our 2014 forecasts for the electricity generation in Asia from 5.7% to 5.3% this quarter. This is due to a major deterioration in the economic outlook for several major countries in the region. Crucially, we are witnessing signs of an economic slowdown in both China and Japan - the world's second and third largest economies (by nominal GDP in 2013) and major trading partners with many countries in the region. Our long-term outlook for Asia's power sector remains relatively sanguine, and we are seeing increased activity in the nuclear energy sector. We believe this can be attributed to diminishing fears over nuclear power, as well as the continued need for cost-effective and clean energy.

The near-term economic outlook for Asia appears to have deteriorated in recent months, leading us to moderate our forecasts for electricity consumption and generation in the region. While the US economy had strengthened as of late, Asian economic powerhouses China and Japan are showing signs of a slowdown, which is likely to have major ramifications for industrial production and investment across the region. Structurally, we continue to see some positive developments that should support medium-term economic growth in Asia, such as reduced exposure to Western demand. However, these positive medium-term developments are likely to have negative effects on short-term growth, owing to the structural deficiencies and shadow-banking issues facing China.

As mentioned previously, we decided to include Australia and Japan in our regional outlook for the Asian power sector in Q1 2014, due to the growing importance of regional dynamics to both markets. The availability and price of feedstock for energy generation are increasingly integrated across the Asian markets. To be sure, we have witnessed increasing competition for feedstock and a convergence in regulations and electricity markets.

Near A 13-Year Low
China - Fixed Asset Investment (Ex-Rural), % chg y-o-y

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Related sectors of this article: Utilities - Power, Power, Regulatory - Power
Geography: Asia, Iran

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