Kuwait imports from China have accelerated in June to 20.5 per cent YoY, from 12.9 per cent YoY in the previous month.
Slowing global demand, exacerbated by an underperforming US economy and a lingering debt crisis in the eurozone, has considerably dampened trade around the world, including China. Chinese exports grew a mere one per cent year-on-year in July, down from 11.3 per cent YoY the previous month. Exports to the G2 economies (US and eurozone) have faltered the most, contracting by 8.5 per cent YoY in July, down from 11.3 per cent YoY growth in June.
Due to a highly interlinked supply chain in Asia, and given slowing demand from the G2, trade between Asian countries has softened as well. Chinese exports to Asian countries have eased from 16.1 per cent YoY in May to 13.5 per cent YoY in June. However, the deceleration has not been as severe as that of the developed economies due to the robust domestic sector in Asia.
Alternatively, the GCC (Gulf Cooperation Council) has maintained its strong demand for Chinese goods. Chinese exports to the GCC were growing at 30.5 per cent YoY in June, slightly softening from May figures of 32.5 per cent YoY. Among the GCC countries, Chinese exports to Qatar decelerated most, from 44.7 per cent YoY in May to 12.7 per cent YoY in June, while Chinese exports to Kuwait have accelerated in June to 20.5 per cent YoY, from 12.9 per cent YoY in the previous month. Thus, China is still benefiting from the strong demand coming from the GCC.
In times of global economic distress, asset prices generally fall with economic activity. For instance, in the last financial crisis in 2008, real estate prices in the US lost substantial value and crude oil Brent prices fell from above $140 to less than $40. In such cases, economies that depend on their oil revenues, such as OPEC (Organization of the Petroleum Exporting Countries) and GCC members, dip as well.
However, oil prices have been steadily high during the current economic backdrop; initially due to the Arab Spring, and more recently due to increasing expectations of a coordinated stimulus from central banks and governments around the world.
The high oil prices have benefited oil exporters, namely Saudi Arabia and Kuwait. And while the Chinese export industry did weaken, increasing investments and infrastructure schemes have required large amounts of oil, maintaining a stable market for GCC oil exports. Consequently, Kuwait and other GCC nations continue to enjoy an ongoing buoyant source of income, keeping their economies afloat.
This subsequently increases domestic demand, partly through government incentives, which translates into stronger demand for external goods, among them Chinese exports.
ies between Kuwait and China have been robust; for instance, 10 per cent of Kuwait’s imports come from China and about five per cent of China’s petroleum imports come from Kuwait alone, benefiting both parties despite the current economic slowdown. On one hand, China gains by exporting goods to Kuwait at a time when other trade partners, such as the US and the eurozone, are witnessing an economic slowdown. On the other hand, Kuwait enjoys a stable source of demand from China for its oil.
The GCC members have been resilient against the global economic slowdown, with Kuwait increasing its demand for Chinese products in June, as the graph shows. The country’s main imports are vehicles, machinery and raw materials used for construction; and increasing imports from China suggest Kuwait’s domestic activity picked up.
As long as oil prices remain above $80 this year, Kuwait and other Chinese oil-exporting partners will continue to enjoy solid growth. High oil exports and improving domestic demand in Kuwait are expected to maintain a firm level of growth.
Money supply accelerated and credit growth picked up to five per cent YoY in June, the highest in more than two years, propelling domestic consumption. There are concerns that the issues in developed nations will remain unresolved beyond this year, which would lead to countries such as China and the GCC members losing key economic partners in the West, such as the US and the euro zone, in the short term.