Economic growth will only fall by 0.5-0.6% in the Middle East next year as a result of the international market turmoil, George Abed, director of the Africa and Middle East department of the Institute of International Finance (IIF), believes.
Abed told Emerging Markets he expected 5.4% growth in the MENA region next year. “Most emerging markets are in better shape”, he said. “It is the mature markets that have really screwed up.”
But he warned that risks in the Levant remained mainly political. “The wave of Islamic fundamentalism is not finished, including Egypt,” he said, “and its strength depends in part on the tension between the US and Iran and on whether Israel takes action against Iran [over its controversial nuclear programme].”
Abed said that in his native Palestine, economic prospects were “all politics”. “My feeling is that there will be further futile negotiations, sporadic dispossessions and an extension of settlements. There will also be aid to keep Palestine alive.”
For the wider region, Abed endorsed the still widespread view that accumulated resources and improved economic management would keep growth at relatively high levels.
In the GCC powerhouse, Abed conceded that Dubai had “gone too far, too fast”. While spreads have widened – including on debt linked to the government-owned property developer, Nakheel – and there was a “correction” in the housing market, Dubai’s risks were “localized and containable”.
“There are just not the same risks in the bigger economies of Saudi Arabia and Abu Dhabi – and while the private sector might slow down construction, government-funded projects will continue at pace.” He added that Abu Dhabi, which has hundreds of billions of dollars in its sovereign wealth fund (SWF), would be able to help any UAE state who ran into difficulties.
Abed said he expected the average annual price of oil to drop from $110/barrel in 2008 to $90-$95/barrel in 2009, moving back up after a low of $75-$80/barrel. This would result both from continuing demand, especially from “robust” growth in India and China, and from Opec’s supply management. “The Saudis like $90-100,” he said. Gulf SWFs would be more cautious than “in the first wave of decline”. “They will structure their interventions so as to get protection, some privileges, preferred shares, some convertibles ,” he said.
Stocks bought by some SWFs in US banks have plummeted in the last week. The Kuwait Investment Authority, which is valued at $200 billion, last month admitted it had lost $270 million on its Citibank investment.
“SWF trust in the US market has been shaken,” said Abed. “So they are also looking elsewhere, for example in China and Japan.” But the relatively good outlook for the region was not confined to the GCC, he insisted. “The non-GCC countries have done fairly well, carrying out structural and administrative reforms,” he said. As part of the “fruits” of reform, he cited the $11.6 billion of foreign direct investment in Egypt in 2007.
Dominique Strauss-Kahn, managing director of the IMF, last month praised Egypt for “the liberalization of trade, foreign investment, and the exchange market, extensive privatization, and the modernization the financial sector”.