By Arab News
By Frank Kane*
Brace yourself for a bumpy ride in 2019. The global economic outlook is looking more problematic than at any time over the past decade, and there is a real risk that the world’s financial markets too are in for a tough time. This will inevitably affect Arabian Gulf markets and economies, many of which are in a critical stage of their diversification strategy.
The geopolitical backdrop is worrying. The risk analysts are unanimous in their gloomy forecasts, with numerous potential flashpoints internationally. Will US-China trade wars heat up to become a physical confrontation, perhaps over maritime access in South East Asia? Will Iranian sanctions prove to be the spark that ignites further conflict in the Middle East? Will the simmering conflict between Russia and Ukraine escalate? Will the EU and Britain ever be able to manage a Brexit strategy?
Any one of these variables could cause serious economic harm, and the likelihood of at least one occurring is high.
The world’s two biggest economies — the US and China — are fragile. In America, gross domestic product (GDP) growth is likely to slow sharply as the stimulus from tax cuts wears off, and interest rates look set to rise at least twice in 2019. The stock markets, which had an abysmal time in the final quarter of 2018, could have much further to fall once the economy slows.
In China, growth is also expected to slow, though it is still forecast to stand at a commendable rate of more than 6 percent. Whether this is enough to pull global growth along remains to be seen. The real risk in China is from the financial system, debt and volatile markets. Official policy measures have not yet tackled these issues.
Europe is in a mess. Even without the Brexit uncertainty, the economics of the EU are uncertain. There are ongoing worries about the Italian financial system; France appears to have retreated from the ambitious reform program launched by President Emmanuel Macron when he first came to power; Germany will have to adapt to a post-Merkel era in which its exporting machine is under pressure. The continent will not be the force that drags the global economy back to sustained growth.
The most pressing European issue — Brexit — has the potential to impact not only the British economy but also anybody who does business with the UK. If Britain crashes out of the EU, it could herald a long recession in the world’s fifth-biggest economy.
In the emerging markets, two of the biggest — Argentina and Turkey — had their crisis last year, and reforms are underway in both countries to prevent a repetition. But which other emerging markets could face similar problems? India will probably be the fastest-growth country in the world in 2019, but its growth rate will not be sufficient to compensate for slowing growth in the US, China and Europe.
In this depressing global prognosis, the Middle East is unlikely to remain immune. The International Monetary Fund (IMF) in November said it was lifting — marginally — its forecasts for oil-exporting countries, but since then the crude price has fallen rapidly. Despite strategies aimed at diversifying away from oil dependency, the price of a barrel is still the single most important variable in regional economics.
The deal engineered by Saudi Arabia and Russia at the last meeting of the Organization of the Petroleum Exporting Countries (OPEC) — to cut production by 1.2 million barrels per day — kicks in on Jan. 1. But with Brent trading at $50 per barrel recently, few experts predict a rapid recovery to the levels needed to balance Arabian Gulf budgets.
One factor on the horizon for the UAE is the looming Expo 2020 event, in which Dubai and Abu Dhabi have invested heavily as a motor for economic growth. Will the long-anticipated “Expo effect” arrive in 2019? There have been so many false dawns in this respect that surely the time has come for a significant stimulus to the Emirates’ economies.
Saudi Arabia has just unveiled its most expansionary budget ever, which should help the Kingdom navigate a tricky global and regional environment. But again, much will depend on the oil price, which has to be much higher if the commitment to balance the deficit by 2023 can be achieved.
In the Saudi corporate sphere, 2019 should see the completion of the link-up between Saudi Aramco and Sabic, as well as the first of a series of initial public offerings of state-owned companies — if the financial markets are conducive.
- Frank Kane is an award-winning business journalist basedin Dubai. Twitter: @frankkanedubai