October 14, 2020
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October 14, 2020
The Highlights
- IEA World Energy Outlook points to solar-powered growth in energy demand
- Chinese stock market breaks $10trn once again, in much healthier shape than last time
One Big Takeaway
The International Energy Agency (IEA), the world’s foremost independent research organisation for the energy sector, has released its flagship publication— theWorld Energy Outlook 2020. The report tackled the unenviable task of making sense of the pandemic’s impact on the global energy system, as well as providing a comprehensive overview of how it could develop in the coming decades.
The picture for oil demand is uncertain, with a base-case scenario suggesting consumption will not return to normal levels until 2023 and perhaps much later if the pandemic is not controlled by next year. But the big loser in the report is coal, whose end is nigh, or at least will be soon. By 2040, coal’s share of the energy mix is expected to fall below 20% for the first time since the industrial revolution.
Unsurprisingly, the report is bullish on renewable energy as the primary source of energy growth in the coming years. In particular, solar will be at the centre of a new constellation of electricity generation technologies, with capacity expected to increase by an average of 13% per year over the coming decade. Solar alone is set to meet almost a third of electricity demand growth during this period.
The rapid pace of change in the electricity sector will put an additional premium on robust grids and other sources of flexibility, as well as reliable supplies of the critical minerals and metals that are vital to its secure transformation. Shifting demand is expected to have wide-reaching consequences as storage begins to play an increasingly vital role in ensuring the flexible operation of power systems. One interesting nugget in the report notes that India is poised to become the largest market for the much-talked about utility-scale battery storage – an area to watch in the coming months and years.
Chart of the Week
The Chinese stock market – the complete market value between the Shanghai and Shenzhen markets – has once again broken the $10trn mark. The news evokes memories of the huge collapse the market suffered when it breeched that mark 5 years ago. But this time the picture is different. In 2015, company valuations in China stood at 40 times earnings; today, they occupy a much more modest price-to-earnings ratio of 19. Now the second largest stock market in the world (but still 4 times smaller than the US), it has matured significantly, shifting away from retail investors towards institutional and foreign investors. With the macroeconomic situation in China looking much stronger than any other G20countries, the outperformance of the Chinese market compared to the S&P 500this year is unsurprising.
east Spotlight
Indian economy still not out of the woods
India’s industrial production seems to be stalling, with August figures showing as light drop-off after a period recovery in June and July. Industrial production is still sitting well below pre-crisis levels, by more than 10%. The service sector meanwhile is showing more positive signs, recording a huge jump in August, but the sector is still failing to record positive growth. The RBI has so far kept interest rates steady, but has indicated it is ready to cut rates to boost the recovery as soon as inflation falls into the central bank’s 4-6% target range.
West SPotlight
France’s manufacturing under pressure
Despite strong figures coming out of the German manufacturing sector, France’s manufacturing still finds itself in choppy waters. The plight of the French aerospace sector, which has suffered greatly from sagging demand in air travel and saw production fall by 13% in August, is particularly acute. Output is languishing 40% below pre-crisis levels, indicating a structural over-capacity in the sector. With 20% of workers on furlough – a similar number to those working in the hard-hit hospitality sector – the sector’s recovery looks a long way off.
Data to Watch
- 20 Oct: The US housing sector has outperformed the wider economy since the start of the pandemic, but September’s US Building Permits figures will show whether the decline in housebuilding permits in August was more than a blip.
- 23 Oct: Growth in UK retail sales has tailed off since July, with September figures set to show what impact the uptick in coronavirus cases in the country is having on consumer spending.