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Sat 26 Sep 2015 10:24 AM

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MENA mining, oil and gas to suffer most from China slowdown

Moody’s report says impact on other sectors will be “negligible”

MENA mining, oil and gas to suffer most from China slowdown
(Photo for illustrative purposes only)

The Middle East’s mining and oil and gas industries are set to suffer the biggest impact from China’s economic slowdown, analysts have predicted.

A report by Moody’s Investor Services said the mining sector in Europe, the Middle East and Africa (EMEA) is the global industry most exposed to China’s economic woes, since between 20 and 30 percent of revenues from mining output is exported to China directly and indirectly.

EMEA commodities producers are therefore most likely to take a hit in the coming months – while oil and gas, shipping, chemicals and auto manufacturing are also exposed, though indirectly.

Moody’s report said: “Metal and mining companies are most exposed both in terms of export volumes and the knock-on effect of lower prices.”

But the report added that oil and gas has notable indirect exposure as a result of weaker Chinese demand on prices, while the shipping industry will feel the impact of lower exports and lower demand for import of raw materials.

Lower Chinese car sales could depress earnings for European auto manufacturers, it added. However, the negative impact could be largely offset by stronger sales in Europe and the US.

Chemicals companies are likely to face lower demand but also see cost benefits from lower oil prices.

Other sectors face a moderate or negligible impact from the slowdown of the world’s second largest economy, the report said.

Richard Morawetz, group credit officer for Moody’s Corporate Finance Group and author of the report, said: “"The impact of developments in China for many EMEA sectors, such as telecoms, real estate, healthcare, railways and airports, will be negligible.

“While these sectors are not irrelevant to the Chinese economy, they tend to be more regionally focused, so any exposure is too minimal to affect their creditworthiness.

“A handful of manufacturing companies have also shifted production to China and export to other countries, so they could potentially benefit from a weaker Chinese currency, if that happens, or slowing wage inflation.”

Moody’s said it has revised its GDP growth forecast for China to

6.3 percent for 2016 and maintained its forecast of 6.8 percent growth for 2015.

The report pointed out that while this represents a significant slowdown over previous years, the country’s growth rate remains significantly ahead of most other developed countries, and the Euro area, and policy support from the authorities in China is likely to “ensure the economic slowdown remains gradual”.

The UAE has been targeting China for future inward investment – the Far East superpower is expected to be the world’s largest oil consumer in the world by the 2030s and it is a major market for other sectors such as real estate and tourism.

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