Kuwait: Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre “Markaz” released its report on China’s slowdown and its impact on the GCC and global economy. An economic slowdown in China, the second-largest economy in the world, is bound to have ripple effects across the global economy. China is a manufacturing hub linked to diverse supply chains. Before the pandemic, China was known for its high growth trajectory that surpassed most developing countries. However, after the reopening of China post the zero COVID policy, the growth trajectory failed to meet market expectations.

In the years between 2012 and 2019, China’s year-on-year average economic growth used to be around 7%-8%. The COVID-19 pandemic and China’s stringent lockdown policies led to a prolonged slowdown in the country’s economic growth. After China’s economy reopened in the first half of 2023, China’s real GDP growth in Q1 2023 was 4.5%, which was above market expectations of 4%, supported by pent-up retail consumption. However, the quarter-on-quarter growth reduced to 0.8% in Q2 2023 from 2.2% in Q1 2023, indicating a slowdown in domestic economic activity.

The fall in real GDP can be attributed to the fall in domestic consumption expenditure and export components of the GDP. The Chinese economy is an export powerhouse, which accounts for almost 20% of the GDP. In 2023, after the reopening of the Chinese economy, export demand slowed down. This is attributed to the global slowdown led by high inflation.

At a time when the rest of the world was facing high inflation, China is facing an economic slowdown due to weak demand. Challenges in the real estate sector further affected the economy. Piling up of unsold buildings in the real estate sector has driven the debt burden of top real estate companies such as Evergrande and Country Graden. These companies have filed for default which could ultimately lead to pressure in the banking sector.

The slowdown will have an impact on the global and GCC economies by disrupting global supply chains, which are deeply interconnected with China. To gauge the direct impact on GCC countries, it is important to analyze their trade linkages with China. For the GCC countries, the slowdown in China implies a reduction in oil exports to China. China is the second largest consumer of oil with a share of 15% of the global consumption. Among GCC countries, Oman has the highest share with its exports to China accounting for almost 42% of its entire exports. Exports from Saudi Arabia, Kuwait and Qatar have sizeable exposure to China at 19%, 27.4% and 12.7% respectively.  GCC countries import several finished consumer goods from China, mainly electronics. Deflation in China might reduce the cost of imports, but a continued economic slowdown would lead to a shortage in supply.

The Chinese government has taken steps to combat the economic slowdown. The revival of demand in the housing sector is key for reviving the Chinese economy. Therefore, to promote housing demand, the Central Bank and financial regulators decided to reduce home purchase restrictions. Further, the government has decided to tackle the fall in the value of the currency by reducing the amount of foreign currency banks are mandated to hold as reserves to 4% from 6% of their foreign exchange deposits. These stimulus measures undertaken by the government are expected to revive demand in China, which could help in the recovery of oil demand. The increase in demand for oil would lead to the relaxation of supply cuts from OPEC+, which would in turn support the economic growth of GCC countries.

About Kuwait Financial Centre “Markaz”

Established in 1974, Kuwait Financial Centre K.P.S.C “Markaz” is one of the leading asset management and investment banking institutions in the MENA region with total assets under management of over KD 1.17 billion as of 30 June 2023 (USD 3.82 billion). Markaz was listed on the Boursa Kuwait in 1997. Over the years, Markaz has pioneered innovation through the creation of new investment channels. These channels enjoy unique characteristics and helped Markaz widen investors’ horizons. Examples include Mumtaz (the first domestic mutual fund), MREF (the first real estate investment fund in Kuwait), and Forsa Financial Fund (the first and only options market maker in the GCC since 2005), all conceptualized, established, and managed by Markaz.

For further information, please contact:
Sondos S. Saad
Media & Communications Department
Kuwait Financial Centre K.P.S.C. "Markaz"
Email: ssaad@markaz.com