When will the economy pick up?

[LRE]

By Dr Mohammad Al Asoomi, Special to Gulf News
Published: April 29, 2009, 23:08


After the end of the worst chapter in the global economic crisis, a question arises on whether we have reached the bottom of the crisis yet.

If the answer is no, then when will we reach it?

This question reflects the great concern not only of investors, but the ordinary people who have been affected by the crisis.

As a result of the crisis, the World Bank expects around 90 million people to join the poor in the world, and the number of hungry people to reach 1 billion.

This question sounds very important when it comes to the possibility of recovery from the crisis and returning to growth, which will enable people of the world to breathe a sigh of relief.

Answering this question is not easy, as the picture of the global economy is still hazy. Yet, some conclusions may be drawn from the financial and economic indicators issued by leading international financial institutions that were severely affected by the crisis.

The situation can be assessed in light of these benchmarks to come up with a primary vision of the possibility of finding a way out of the bottleneck.

To this effect, there are varying estimates. The European Union, which has great economic credibility, expects the financial situation to start recovering by the end of this year, while the International Monetary Fund expects that the global economy will begin recovering in 2010.

For the US, which is the centre of the crisis, the estimates by the Federal Reserve Bank differ from time to time, but it is believed that the appropriate conditions will be available for the US economy to start recovering by the middle of next year.

Initially, many positive indications appeared with the announcement of the 2009 first quarter results of giant corporations. The profits of the Bank of America multiplied threefold in the first quarter to exceed $4 billion (Dh14.69 billion) while Citigroup, Goldman Sachs and General Electric achieved profits of over $1.5 billion each.

In Europe, Bank Credit Suisse reported profits of $1.7 billion, while house prices in Britain increased by two per cent for the first time.

The automobile industry, which is facing bankruptcy, reduced its losses beyond expectations. The losses of the Ford Motor Company were only around $1.4 billion in the first quarter.

These profits were just a dream less than six months ago, when the giant financial institutions were struggling and asking for help from finance ministries and central banks.

Yes, there are positive indications, but they are fluctuating and varying.

However, government measures and international coordination have begun to bear fruit, including the Group of 20 (G20) decisions.

But, what about our Gulf Co-operation Council (GCC) and Arab institutions, and how are they affected by these developments?

With the announcement of their first quarter results, it became clear that GCC and Arab institutions achieved better results than those of the international institutions.

Maybe this is normal, because Gulf and other Arab institutions were not heavily involved in the property mortgage crisis and its consequential major losses, which kept them relatively far from these major losses, despite the repercussions they suffered as a result of the collapsing global financial system.

This clearly means that GCC and other Arab economies have reached the bottom and are recovering.

The signs of growth appeared with the announcement of the first quarter results, when most losses and dead debts were scrapped.

Furthermore, they managed to make considerably good profits considering the global financial and economic situations.

Based on this, it is expected that the second quarter results will be better than the first for local institutions, and by the time these results are announced in August, regional financial institutions, along with economies, will be on their way out of the crisis.

Some may wonder why GCC economies will recover before others. Yet, there are many objective reasons that justify this recovery, and which we will discuss in coming articles.



The writer is a UAE economic expert.

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