Mideast oil sector facing China slowdown impact
Exposure, however, is indirect; mining to be most affected
The mining sector in the Europe, Middle East and Africa region faces the most exposure to the expected gradual slowdown in China, followed by oil and gas, shipping, chemicals and auto manufacturing, according to Moody's Investors Service.
Other sectors face a moderate or negligible impact from the expected hard landing in the world's second-largest economy.
The credit ratings agency estimates that about 20 per cent to 30 per cent of Emea mining output, in terms of revenues, is exported to China both directly and indirectly, the highest of all sectors.
The oil and gas sector has indirect exposure via weaker Chinese demand on prices, while the shipping industry will feel the side effects of lower demand for imports of raw materials and lower exports.
"Metal and mining companies are most exposed both in terms of export volumes and the knock-on effect of lower prices. The oil and gas sector has indirect exposure owing to the impact of weaker demand on prices, while the shipping industry will feel the side effects of lower demand for imports of raw materials and lower exports," it said in a report.
During the past decade, many Emea companies invested in China, usually as a means of offsetting ongoing economic stagnation in the Emea, to lower production costs or to capitalise on the lower market penetration in some sectors than in their home market. Slower growth in China could change these investment strategies, the ratings agency said.
Worries about the Chinese economy have rattled Gulf stock exchanges, with Saudi Arabia's market going down by 17 per cent at the end of August compared with July.
Analysts argue that the reaction in financial markets underscored a deeper set of trade and investment connections between the GCC and China.
Economic ties with China have been a top priority for the GCC for three main reasons. The first is that the market for GCC oil is shifting from the US to China; China is expected to be the world's largest oil consumer in the world by the 2030s, and the GCC countries possess nearly one-third of the world's known oil reserves. Second, China is also a major market for the Gulf's growing non-oil businesses.
The third reason, according to analysts, is that Gulf investors have been buying into Chinese stocks and bonds, as part of a strategy to lessen their traditional dependence on the US and Europe.
Naturally, worries about China's economy raise concerns for the GCC. Analysts fear there would be an impact on GCC's trade and investment links with China. Slowing growth in China also could further depress the price of oil. Also, any shock to the world economy poses risks to the Gulf countries, given the extent of their international investments.
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