Abu Dhabi forum highlights doom for all apart from the UAE and Qatar
Posted on 01 March 2012 with 2 comments from readers
You could certainly accuse speakers at the National Bank of Abu Dhabi Global Financial Markets Forum yesterday of playing to the home crowd. There was almost universal gloom about economic prospects everywhere except the UAE and Qatar.
The global doom is not so hard to swallow. ArabianMoney has been pointing out for ages that the US recovery is false and based on printed money; that the eurozone sovereign debt crisis is not going away anytime soon; that China is slowing down; and that unemployment and social unrest is on the rise, big time.
Escaping the downturn?
But can the UAE and Qatar really remain islands of stability in this chaos and even profit from it? Surely Iran is a near neighbor with big economic and diplomatic problems. And even energy prices will go down in a global slump.
Perhaps but the money printing looks like pushing up energy prices while barely keeping financial markets afloat in nominal terms and certainly not when adjusted for inflation. Big exporters of energy will therefore win hands down.
We would also add Saudi Arabia, Kuwait and Oman to this list of winners, and that is good news for the UAE which is their largest regional trading partner. The threat of an attack on Iran is also good for oil prices.
Where the pressure on Iran is bad news is that it means a collapse in trade for Dubai with this traditional partner, and there is a potential for a hiatus in the Strait of Hormuz, not that anybody seriously thinks Iran could close this sea lane for very long if at all.
So it is possible that the Gulf Oil States ex-Bahrain, which has its own internal issues to resolve could sail through a global economic slump over the next few years with strong GDP growth, thanks mainly to high energy prices and spending on the domestic economy to keep citizens happy.
Apart from Dubai the region is also about the only place in the world without massive debts to worry about, and even Dubai has the worst of its rescheduling behind it and a super-solvent lender of last resort in Abu Dhabi.
Domestic spending
Aside from the obvious onus from the Arab Spring to raise national salaries and boost education and welfare spending, the Gulf States are also likely to focus back on inward investment if only because international markets will be so bleak.
A virtuous circle of high growth GDP and domestic spending and investment could indeed keep the UAE and Qatar growing while the rest of the world is in trouble. And in time these nations will be well positioned to pick up bargain assets when global financial markets bottom out.
The same sort of thing happened in the 1970s. Gulf Arabs still own much of Central London that they bought at that time. The late 70s were also a dangerous time in the Middle East, culminating in the Iranian Revolution but the economies of the Gulf States were standout global winners then. It may not be different this time.
2 Comments posted by readers:
Electronic money is being created but not much of it is converted to “folding stuff” that you can put in your wallet. It’s not being dropped from helicopters yet! Most of it goes from the Government to the banks and then back again at a tidy risk-free spread. Gives the bankers a job within their intellectual range and keeps the banks from bankruptcy. Unfortunately we do need ‘em to keep the wheels of finance greased.
Many companies are doing very well indeed: profits are at record levels and many have shedloads of cash in the bank. Apple’s bank balance has 9 digits! Unfortunately that is partly accomplished by laying off Western workers.
China may be slowing but it’s still growing at a pace of knots.
So I’m with our whimsical American friend “Bill of Slidell” – no recession this year!
Sorry to be a killjoy, but the recession is from November… Repeating words of Frank Biancheri, “the game is no longer about winning, but losing as little as possible”