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Pleasing signs in the GCC
05-07-2009, 06:47 PM
Post: #1
Pleasing signs in the GCC
By Mohammad Al Asoomi, Special to Gulf News
Published: May 06, 2009, 23:08



There are many signs to support my belief that the Gulf Cooperation Council (GCC) economies are heading towards stability and will emerge strong from the global financial crisis.

I previously wrote about positive signs that the region is heading towards economic stability, and would recover from the crisis.

While some may agree with this view, others may have a different opinion, which is understandable.

The first of these signs of improvement is related to oil, which is the most important GCC export.

Recently, oil prices have remained stable at around $50 per barrel, despite discouraging data regarding the US strategic petroleum reserve.

Stability at this level, or a possible increase over the coming months in preparation for winter contracts, clearly means that a major obstacle affecting the performance of GCC economies has been overcome.

This contradicts predictions by many analysts who bet on oil prices falling to less than $25 per barrel.

Many of the GCC countries estimated the oil price at an average of $45 to $50 per barrel when preparing their budgets for 2009.

Consequently, they are likely to suffer only small budget deficits this year. In the event that the oil price increases to $60 per barrel, which is possible, these countries will avoid deficits.

Second, the first-quarter results for public joint stock companies, especially banks and financial institutions, have been promising.

Some companies reported higher profits than in the first quarter of 2008.

This led to a rise in GCC stock markets in April compared to March, and may lead to more improvement in the coming months, especially since global bourses have seen a similar improvement.

The UK's Financial Times index rose by 20 per cent last month, compared to March.

Third, one of the manifestations of the crisis has been a shortage of credit and finance, which has resulted in a freeze in many economic activities. Yet, there have been signs of an improvement in this regard in GCC countries in the last couple of months. Many banks have resumed promoting their finance services, albeit conservatively, which has helped other sectors to achieve stability.

Fourth, GCC countries have fulfilled their outstanding financial obligations to suppliers and financers, including in the sectors that were severely affected by the crisis, such as the property sector. This has spread an atmosphere of confidence in the ability of GCC economies to overcome the repercussions of the crisis faster than expected.

Fifth, the GCC labour markets are stable and there has been a decline in the number of layoffs since the onset of the crisis. The government sector has even started hiring again, and this may spread to the private sector if economic situations continue to improve in the next few months.

Thus, we can say that the worst of the crisis is over for GCC and regional countries, with financial deterioration staring to slow at many affected institutions and disappearing at others.

Signs of stability and growth are evident in the good performance of companies and the high rates of government expenditure, which have stimulated economic sectors in GCC countries and helped them overcome the repercussions of the crisis in a relatively short span of time.

These developments will encourage local and foreign investors - who have been holding onto their money in the belief that cash is king, an adage that has been repeated often in recent months - to relax investment restrictions.

This relaxation is evident in the flow of cash into regional markets, including foreign cash, which means that these markets are attracting investments in various sectors. This does not mean the repercussions of the crisis have been completely overcome, since many of them will last for the next few months, and the recovery and growth process will take some time, especially for the sectors that suffered most from the crisis.

What we must focus on is that the return to stability has begun and the potential for growth exists, suggesting that the measures taken to address the crisis have been successful. This also reflects the ability of the region's economies to cope in difficult times, including the current crisis, which is the worst since the Great Depression of the 1930s.


The writer is a UAE economic expert.

http://www.gulfnews.com/business/Comment...11209.html
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