From a rise in US unemployment claims to a fall in industrial production in the euro zone and a deceleration in Japanese growth, signs of the global economic recovery losing traction are everywhere to be seen.
Although the prospect of lurching into a double-dip recession appears less likely at the moment, most economists expect the outlook to cool in the second half of the year. High unemployment, weak consumer demand and a shortage of credit will act as a hangover from the financial crisis, dragging on growth. The momentum of recovery is expected to stall as advanced countries wean their economies off the stimulus measures that acted as a cushion during the hard times.
"We do see global risks increasing in the second half of the year," said Monica Malik, the chief economist at EFG-Hermes in Dubai. "We are moving from the first stage 'easy' recovery into a patchy growth outlook with far greater volatility." For the Gulf, the risks of a slowdown in the global economy are considerable. A drop in investment appetite could impact on capital flows which have experienced a short-term recovery since the downturn.
"Given that the region's main non-oil sector offer was real estate, outside of investment in the oil and gas sector, mainly in Saudi Arabia and Qatar, the rest of the region will have lower foreign direct investment (FDI) than anticipated at the start of this year," said John Sfakianakis, the chief economist at Banque Saudi Fransi. A combination of a slowdown in the region's property market and concerns about corporate restructuring could further deter foreign capital, say economists.
During the past decade, such flows have formed an important part of the region's economic transformation. FDI is important as it allows GCC governments to use more of their wealth from oil to build foreign currency reserves rather than finance domestic projects. It also enables the region to boost its diversification efforts through the transfer of expertise. FDI projects in Saudi Arabia create 375,000 jobs, 27 per cent of them for nationals, and generate salaries of US$7.8 billion (Dh28.64bn), according to research by NCB Capital. The kingdom has a total FDI stock of $147.1bn, followed by $73.4bn for the UAE. Kuwait attracts the least FDI in the region, with a stock of $986 million.
As a leading supplier of the world's oil and petrochemicals, the risk for the region from a slowdown is that it may choke demand for its main exports. With governments in Europe embarking on austerity programmes to cut budget deficits, and households in many large economies holding back on spending, the outlook for a global rebound that has spurred exports may become less certain. EFG-Hermes lowered its expectation for the price of oil to $75 for the second half of the year, slightly below its forecast of $77 for the year as a whole.
"Lower potential growth worldwide will impact on oil prices and this region should expect reduced oil revenues with more diversified parts like Saudi Arabia and the UAE suffering less than places like Kuwait," said Alessandro Magnoli Bocchi, the chief economist at Kuwait China Investment Company (KCIC). However, even if prices slipped to $60, they would still be almost double what they were at the trough of the recession, and sufficient to allow all states, except Bahrain, to continue their investment spending comfortably without falling into deficit. Prices have so far averaged $77 this year, compared with an average of $61 last year.
Another reason to be optimistic is that the GCC's fiscal health is in better condition than in European countries, which are being forced to cut back their expenditure in an attempt to gain control of bulging budget deficits. Other risks to the region's economic recovery are domestic-based. Persistently sluggish credit growth is proving a challenge in countries across the world as borrowers and lenders' appetite for credit remains low.
In the GCC, attempts to develop the role of the non-oil private sector hinge on the ability of businesses to access bank credit. After an abundant flow of finance contributed to an average credit growth of 30 per cent in 2007-08, the IMF forecasts credit expansion in the region to be in the low single digits this year. Banque Saudi Fransi expects private-sector credit growth in the region's biggest economy, Saudi Arabia, to be about 5 to 8 per cent this year, better than last year but far short of the pre-global recession era. "In an environment where the global economy is jittery, appetite for expansion and credit in the private sector will be affected," said Mr Sfakianakis.
"This may mean the postponement of projects will be more prevalent than before the crisis." tarnold@thenational.ae
Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
The specs: 2018 Chevrolet Equinox
Price, base / as tested: Dh76,900 / Dh110,900
Engine: 2.0L, turbocharged in-line four-cylinder
Gearbox: Nine-speed automatic
Power: 252hp @ 5,500rpm
Torque: Torque: 352Nm @ 2,500rpm
Fuel economy, combined: 8.5L / 100km
Race card
5pm: Maiden (PA) Dh80,000 (Turf) 1,600m
5.30pm: Handicap (PA) Dh80,000 (T) 1,600m
6pm: Arabian Triple Crown Round-1 Listed (PA) Dh230,000 (T) 1,600m
6.30pm: Wathba Stallions Cup Handicap (PA) Dh70,000 (T) 1,400m
7pm: Maiden (PA) Dh80,000 (T) 1,200m
7.30pm: Handicap (TB) Dh100,000 (T) 2,400m
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
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The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
SHAITTAN
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COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
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Fixtures
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Women%E2%80%99s%20T20%20World%20Cup%20Qualifier
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Countdown to Zero exhibition will show how disease can be beaten
Countdown to Zero: Defeating Disease, an international multimedia exhibition created by the American Museum of National History in collaboration with The Carter Center, will open in Abu Dhabi a month before Reaching the Last Mile.
Opening on October 15 and running until November 15, the free exhibition opens at The Galleria mall on Al Maryah Island, and has already been seen at the Jimmy Carter Presidential Library and Museum in Atlanta, the American Museum of Natural History in New York, and the London School of Hygiene and Tropical Medicine.
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
