GCC has a lot to win from US, EU recovery
Gulf oil exporting countries will benefit from the economic recovery in the US and Europe while a potential decline in oil demand due to a slowdown in emerging markets will be largely offset by the positive developments in the Western economies and economic diversification in Gulf countries, according to economists and analysts.
“The developed markets are entering a phase of tightening of monetary policy cycle starting with the US tapering. We need to look at emerging markets in this new context. We have seen some dramatic changes in capital flows and currency depreciation in some of these markets since last summer. But this does not mean all emerging markets are going to experience a massive slump,” Jean-Michel Six, the Paris-based chief economist for Europe, the Middle East and Africa at Standard & Poors told Gulf News in an interview.
While many emerging markets will experience turbulence of varying degrees in relation to their fundamental strengths and their dependence on foreign capital flows, Six said it is unrealistic to expect a slowdown in China’s growth (to about 7 per cent) will result in a massive decline in commodities demand particularly oil demand.
“China has an investment to gross domestic product (GDP) ratio of 48 per cent. Thus a demand slump is not going to happen over a very short period of time,” Six said.
The S&P economist said oil prices for 2014 are likely to hover around the current level above $100 a barrel and the GCC economies should not be overly worried about a potential supply glut in the market resulting from new supplies from the US, Iran or other Middle East and Africa sources.
“There is a time factor attached to these new supply sources. For the next 12 to 18 moths, the new supply sources should not be a big worry. While these challenges are real in the medium term, Gulf oil exporters should focus more on diversifying their economies,” Six said.
Analysts say Gulf oil producers are preparing themselves for the changing supply and demand dynamics of global oil markets with major diversification programmes in most countries with the UAE, Saudi Arabia and Qatar leading the region.
“Non-oil sector activity in the UAE and Saudi Arabia remains robust, with the Saudi purchasing managers’ index (PMI) reaching its highest level in 15 months in January. Firms in both countries reported strong operating conditions and while export growth accelerated last month,” said Khatija Haque, Head of Mena Research at Emirates NBD.
The UAE and Dubai are in the forefront of economic diversification efforts to hedge against future volatility in global oil markets. “Because of its diversification initiatives, the UAE is expected to emerge as a regional powerhouse in trade and tourism and as an investment destination. Government expenditure is scheduled to increase 4.5 per cent in 2014, which would further help sustain growth in the non-oil sector,” said Shailesh Dash, CEO of Al Masah Capital.