ECONOMIC UPTURN IN THE FACE OF UNCERTAINTY

By Shereen Shabnam

As we enter the second month of 2017, we were invited to listen to the thoughts of Massimo Falcioni, CEO of Middle East Countries at Coface about the global economy at the Capital Club in Dubai. His presentation was insightful and looked at the current status of the world economy after a tumultuous 2016, stating that the global economy expects to see slight improvement in 2017 with +2.7% expected growth.

 

Massimo also shared with us reports that show emerging Countries are expected to recover and grow by +4.1%, due to oil price and demand recovery and that advanced economies are on steady growth at 1.6% due to some inflation and political risks.

 

The last year saw GCC economies experiencing a slow down but with hopes to register a recovery in 2017, especially UAE due to diversified economy and Expo 2020 infrastructure investments.

 

We bring you below a snapshot of the findings by Coface, a worldwide leader in trade credit management solutions and risk information services, together with a report on expectations for 2017.

 

According to the global and regional economic outlook and sector analysis of Coface, all GCC countries except Kuwait, had seen economic contraction in 2016.

 

GDP GROWTH (%)

GCC Countries

2015

2016

2017

UAE

3.9

2.3

2.5

Saudi Arabia

3.5

1.3

1.8

Qatar

3.6

2.6

3.3

Bahrain

2.8

2.0

1.7

Oman

3.3

1.8

1.7

Kuwait*

1.1

2.4

2.6

 

 

Growth is expected to improve in 2017 across the GCC states, except in Oman and Bahrain. The Coface analysis shows that UAE growth will pick up in 2017 to reach 2.5 per cent up from 2.3 per cent in 2016 because this country is more diversified from oil than its neighbouring GCC countries. Saudi Arabia’s economic growth is expected to accelerate to 1.8 per cent in 2017 from 1.3 per cent in 2016.

 

For Qatar, its huge financial reserves and still-strong revenues from its gas sector will ensure continued public sector spending ahead of the FIFA 2022 World Cup. This will keep the country’s growth trajectory relatively high in the region. Qatar’s economic growth is forecast to be 3.3 per cent in 2017 up from 2.6 per cent in 2016.

 

The Bahrain economy will shrink further going down to 1.7 per cent in 2017 from 2 per cent in 2016. Growth in Oman will also dip slightly again to be 1.7 per cent in 2017 from 1.8 per cent in 2016.

 

Kuwait’s economy had more than doubled from 2015 to 2016 going from 1.1 per cent to 2.4 per cent. In 2017, the country will grow more and reach 2.6 per cent.

 

Slight recovery with challenges ahead

Massimo Falcioni, CEO of Middle East Countries at Coface, said, “The UAE has remained relatively resilient in the face of lower hydrocarbon prices because of its economic diversity, but the lower oil revenues left government spending constrained and this had a spillover effect on all economic activities. The slight rise in oil prices now should give a corresponding impetus to the UAE economy.”

 

“Abu Dhabi, being the most oil-dependent emirate will continue to see a slowdown in 2017. Dubai should be more resilient but some non-oil economic activities could still falter. Overall, the country’s growth will be driven by the tourism and financial sectors, while difficulties in the construction sector will remain,” Falcioni said.

 

“The stable political and security climate of the UAE helps it stand out in the region.  The country’s business climate, already the most favourable in this region, is improving further. The expected passing of the new UAE insolvency law will make the country still more business-friendly, giving companies in difficulty a reliable mechanism to restructure their operations,” said Falcioni.

 

The UAE was rated the top country in the Middle East and North Africa in ‘Doing Business Ranks, Most Improved Globally’, according to a World Bank report published at the end of October last year. According to the World Bank, the UAE led the GCC in terms of the number of reforms implemented and it jumped 39 ranks in the reform category of ‘Protecting Minority Investors’.

 

Global growth and protectionism

Globally, growth weakened for the second consecutive year in 2016 to reach 2.5 per cent based on Coface data. A slight improvement (+2.7%) is expected for 2017 especially with the upturn in activity for emerging economies (+4.1%, up from +3.7%) and the economic recoveries in Brazil and Russia, which will offset China’s gradual economic deceleration.

 

Activity in advanced economies will hold steady (+1.6%), with the slowdown in the United Kingdom being compensated for by the resilience of the eurozone and the slight improvement in US economic activities.

 

In 2017, the trade may be negatively impacted by protectionism which is the stated policy of the recently elected Republican government in the United States of America.

 

In Europe, Coface’s political risk indicator in the past year increased by an average of 13 points for Germany, France, Italy, Spain and the United Kingdom. The main threats to growth include the expected economic consequences of Brexit and the probability of political unrest in Continental Europe on a scale similar to the UK referendum.

 

Overall, global risks to be considered are of two kinds as per Coface analysis. First, the political risk and protectionism risk. Second, the banking risk, which includes very high corporate debt in China and bad debt in the banking sector in the Brazil, Russia, India, China (BRIC) economies.

 

“Any business that is not strictly limited to local boundaries should protect its trade credit. Risk management and trade credit protection are vital for businesses to deal with any liquidity squeeze arising from unforeseen developments,” Falcioni added.

 

“Oil prices are not expected to return to the previous high levels immediately, that is why public spending in the GCC will remain cautious. A wide range of factors that would impact regional and global consumption patterns calls for greater measures to protect business assets,” Falcioni concluded. 

 

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