Continuing my live blogging of the MegaTrends conference before my keynote this afternoon, there are two sessions on the economy: a presentation from the Ministry of the Economy, and a panel of the chief economists of leading banks.
The UAE Minister for the Economy couldn’t make it, so the Director-General of the Ministry presented his speech. Most interestingly, he said that they believe that the worst of the crisis is over. Government spending is up 30% on last year, and infrastructure spending is continuing as planned. A new government body will be established this year to provide more consistent and accurate economic data.
Views from the panel:
Mr. Marios Maratheftis, Chief Economist, Standard Chartered Middle East, UAE
While things seem to have been bottomed in UAE and the worst is behind us, not prepared to call a quick recovery. Apparently 70% of projects in the country are real estate related, which is not appropriate. The downturn could be a blessing in disguise if it shifts investment into infrastructure that will drive productivity, away from a focus on real estate. There will be limited negative impact from UAE’s decision not join the GCC monetary union.
Dr. Giyas Gokkent, Chief Economist, National Bank of Abu Dhabi, UAE
The impact on the GCC of the current turmoil hasn’t been uniform. Dubai has been hardest hit through lack of diversification and a massive focus on real estate. Kuwait is also challenged because they had a large investment banking industry which got stuck in problematic investments. Nominal GDP for the region is being impacted significantly by the decline in oil prices. Inflation is not a problem. There is a problem with unemployment in that expats who lose their jobs leave the country.
Dr. Mohamed Jaber, Lead Economist and Vice President, Morgan Stanley & Co., GCC
The region was hit a perfect storm. Inflated asset prices fell, credit markets dried up, oil prices and slumped. However we believe that the GCC countries will weather the storm well. The IMF estimates that the countries have over the last years saved over $1 trillion from oil sales. The monetary and fiscal responses have been appropriate. Saudi Arabia over the next year will spend 9% of GDP. The worst may be behind us, however the speed and strength of the recovery may not be uniform across the region.
The GCC monetary union is not likely to be very important in that it’s unlikely to drive substantially lower transaction costs or greater M&A activity. The lack of negative impact of the UAE withdrawing from the union reflects that.