China virus threatens to further dampen Gulf economies

Coronavirus cases have been reported across the Asia Pacific region and in North America and Europe, but a Wuhan family in the UAE are the first in the Middle East. (AFP)
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Updated 13 February 2020

China virus threatens to further dampen Gulf economies

  • Over 1.6 million Chinese tourists visited the Gulf states in 2018

DUBAI: The coronavirus crisis, which has already battered oil prices, could further undercut Gulf economies.

The six Gulf states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE — count China as their main trading partner and crude buyer, which soaks up about a fifth of their oil.

But China’s energy demand has sagged as authorities lock down millions of people in several cities to prevent the spread of the disease, now named COVID-19, that has killed more than 1,100 people so far.

The knock-on effects for a global economy that is dependent on a buoyant China — the powerhouse which accounts for one third of the growth in oil demand — have seen prices sink to a one-year low.

Analysts believe the crisis, which the World Health Organization said this week spells a “very grave” global threat, will undercut the industry and dampen prices.

“There is no question that the virus is having a significant impact on Chinese oil demand,” Bill Farren-Price of Petroleum Policy Intelligence (PPI) told AFP.

If the lockdowns continue into the year’s second quarter,” he said, “then it starts to look more serious and will have deeper impacts on the real economy.”

Non-oil trade between Beijing and the Gulf Cooperation Council (GCC) has grown from just several billion dollars two decades ago to nearly $200 billion last year.

One industry that has taken an early hit is tourism.

Over 1.6 million Chinese tourists visited the Gulf states in 2018, most of them heading to Dubai, and the number had been rising fast.

In recent weeks, however, Chinese visitors have been rarely sighted even in Dubai as airlines have suspend routes following the outbreak, threatening the ambitious tourism targets.

The latest shock comes shortly after the International Monetary Fund warned that Gulf states must undertake much deeper reforms or risk seeing some $2.5 trillion in accumulated wealth drain away in 15 years as global demand for oil slides.

Oil income is highly sensitive to Gulf states as it contributes more than 70 percent of public revenues.

Since Jan. 30, a month after the disease was discovered, oil prices have dropped by around 20 percent, slashing tens of billions of dollars from GCC revenues.

An oil price crash in mid-2014 had already seen public revenues dwindle and growth rates tumble, forcing borrowing and a drawdown on assets to plug budget deficits.

Major energy-producing countries, which had already cut production in an effort to revive the market, now face a “double whammy” of slumping prices as well as more fundamental economic trauma, said Ellen Wald, author of the book “Saudi Inc.”

“The declines, coming at a time of curtailed output, threaten economic shocks that, if long-lasting, could lead to the kind of political and regional instability that was avoided during the last steep drop,” she said in a Bloomberg news agency commentary.

London-based research consultancy Capital Economics also warned that a prolonged impact from COVID-19 could trigger a major economic downturn.

“Fears about the coronavirus outbreak have weighed on oil prices and clouded the near-term outlook for the Gulf countries,” it said in a report.

“Lower oil prices and a possible deepening of oil production cuts will act as a headwind to growth in early 2020.”

As a result of the sharp decline in oil prices, a technical committee for OPEC and its partners last week recommended additional production cuts of 600,000 bpd to add it to the 1.7 million bpd of cuts already in place.

Russia has been reluctant to commit, promising a decision soon.


Cheese, car parts and Kobe beef: UK’s trade deal with Japan

EU Chief negotiator Michel Barnier walks to a meeting in London, Friday, Oct. 23, 2020. (AP)
Updated 24 October 2020

Cheese, car parts and Kobe beef: UK’s trade deal with Japan

  • Britain hopes new agreement will provide better access to Japanese markets

TOKYO: Britain says the post-Brexit trade deal signed with Japan on Friday “secures major wins that would be impossible as part of the EU”, though its substance is largely similar to the current EU-Japan accord.

Britain hopes the agreement will boost trade with Japan by around $20 billion when it comes into force in January after being ratified by lawmakers in both countries.
Here are four things to know about the bilateral deal: When the deal was announced last month, Britain said it meant around 99 percent of its exports to Japan would be tariff-free.
Under the current EU-Japan trade agreement, in place since February 2019, the vast majority of custom duties are also absent.
The European Union says that under its deal, the bloc’s meat exports to Japan increased by 12 percent, while electrical machinery exports were boosted by 16.4 percent.
“In terms of market access, we have maintained Japan’s high level access to the UK market as under the Japan-EU deal,” Japan’s Foreign Minister Toshimitsu Motegi said on Friday.
“And for some products such as train cars and autoparts, we have improved access.”
The Japan-UK deal has a particular focus on exports in the food and drink, finance and tech sectors, and aims to reduce red tape for British pork, beef and salmon farmers.
It also includes brand protection for British goods, including English sparkling wine, Yorkshire Wensleydale cheese and Welsh lamb.
In return, the UK government says consumers will be able to buy “cheaper, high-quality Japanese goods — from udon noodles to Bluefin tuna and Kobe beef.”

FASTFACT

There are currently 241 British businesses in the agriculture and food sector who import from Japan, and 693 who export goods to Japan.

There are currently 241 British businesses in the agriculture and food sector who import from Japan, and 693 who export goods to Japan, the UK government says.
But unlike the Japan-EU deal, this agreement lacks quotas for agricultural exports like cheese, according to the Financial Times, and instead allows Britain to use any such quotas left over by the EU.
The deal includes new provisions on digital trade that aim to ease the flow of data, among other changes.
“This deal doesn’t just preserve existing benefits, but it strikes out in services like digital and data, where the UK and Japan both have strengths, and hope to collaborate in future,” said Britain’s International Trade Secretary Liz Truss.
The UK hopes the deal will help its companies that supply services — from financial to telecoms and transport — gain access to the Japanese market.
While some analysts have cast doubt on how much difference the new digital provisions will make, British businesses have welcomed the agreement.
Carolyn Fairbairn, director-general of the Confederation of British Industry, called it a “breakthrough moment”.
Japan accounted for around just two percent of Britain’s trade last year, government statistics show — roughly the same as Norway.
But the deal could act as a bridge for the UK to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, also known as TPP-11 — a free-trade deal between 11 countries including Japan, Canada, Mexico, Vietnam and Australia.
It was previously known as the Trans-Pacific Partnership (TPP) and had been slated to be the world’s largest trade pact before the United States withdrew in 2017, blocking its ratification.
Truss said the deal “paves the way” for Britain to join the partnership — but this is likely to be a complex manoeuvre that will take years.