1 / 22

Dr. Eckart Woertz Program Manager Economics Gulf Research Center Dubai

Privileged in a Downturn: GCC Countries and the Global Financial Crisis. Dr. Eckart Woertz Program Manager Economics Gulf Research Center Dubai. Economic and Social Commission for Western Asia (ESCWA) , Damascus, May 5-7, 2009. Overview. Direct Financial Impact: Losses of Banks and SWFs

dulcea
Download Presentation

Dr. Eckart Woertz Program Manager Economics Gulf Research Center Dubai

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Privileged in a Downturn: GCC Countries and the Global Financial Crisis Dr. Eckart Woertz Program Manager Economics Gulf Research Center Dubai Economic and Social Commission for Western Asia (ESCWA), Damascus, May 5-7, 2009

  2. Overview • Direct Financial Impact: Losses of Banks and SWFs • Indirect Financial Impact: Higher Costs of Lending • Effects on the Real Economy • Mitigating Measures of Central Banks and Governments • 5) Changing GCC Investment Patterns

  3. Direct Financial Impact Officially Announced Subprime Losses of GCC Banks Source: Various Newspapers

  4. Direct Financial Impact Source: Brad Setser, Rachel Ziemba, Council on Foreign Relations, January 2009, (as share of Dec. 2007 portfolio, excluding new inflows)

  5. Direct Financial Impact Source: Brad Setser, Rachel Ziemba, Council on Foreign RelationsJanuary 2009

  6. Indirect Financial Impact GCC Corporates (GCCI): Spread above LIBOR, HSBC/ DIFX GBCI Index Source: HSBC, DIFX

  7. Irrational Exuberance? Until Oct. 2008: Capacity Constraints, Project Delays and Cost Escalation have become a daily occurrence Since then: Bubble has burst – how bad will it be? Population Dubai (mn) Source: MEED

  8. Effects on the Real Economy

  9. Oil as % of Budgetand Export Revenues

  10. Oil Demand Down…, Source: IEA … but so is investment  Supply constraints in the middle run

  11. Mitigating Measure Central Banks • Inflation fears and reluctant following of Fed rate cuts in the first half of 2008 have given way to accommodative stance and successive rate cuts • Initial UAE AED50 bn facility too passive and too expensive, interbanking rates did not come down  Direct deposit of AED 70bn • Kuwait more aggressive: Direct central bank deposits with banks, and early rate cuts from 5.75 percent to 4.5 percent on September 29 • SAMA equally cut its repo rate in October for the first time since 2007 and reduced reserve requirements from 13 percent to 10 percent • No coordinated GCC policy  Danger of erratic intra-GCC capital flows, which could make capital controls tempting

  12. Varying Deposit Insurance • Kuwait: All deposits guaranteed without cap or time limit • UAE: All existing deposits for three years, no limit, not new ones, all domestic and foreign banks with “significant operations”, regional and Iranian banks excluded • Saudi Arabia: Announcement of general commitment but no details • Qatar: No explicit guarantee • Bahrain: Insurance scheme since 1994 up to BD 15.000. Larger commitments impossible because of deposits/ GDP

  13. SWF Stepping In? • West: State is massively buying into the economy • Russia and China: SWF investing in domestic Markets • Kuwait Investment Authority (KIA) announces to invest in local capital markets • Qatar Investment Authority (QIA) has set aside funds of $5.3 bn in order to buy 10-20% stakes of Qatari banks • Abu Dhabi bailing out Dubai

  14. Imbalances: Picture changing? Source: IMF, World Economic Outlook Dataset April 2009 *Hong Kong, Taiwan, Singapore, South Korea ** Russia, Norway, Venezuela, Algeria, Libya, Iran, Nigeria, Angola, Brunei. Iraq data not available

  15. Surpluses to Deficits? Source: IIF

  16. Capital Outflows Source: IIF

  17. Too much Debt Source: Grandfather Economic Report Debt worldwide has risen dramatically. US, for example: Total private and public debt = $57 trillion. $187.000 for every man, woman and child In 2008, US debt increased 5 times faster than US GDP 79% ($45 trillion) of total US debt was created since 1990, a period primarily driven by debt instead of by productive activity 17

  18. Diversification into the Euro?

  19. Dollar hedging Watch this chart in times of quantitative easing: Source: WGC

  20. GCC Food Security • 60% import dependence by 2010 (FAO) • Main GCC food imports from: EU, AUS, Ukraine, Syria, Brazil, India, US • GCC eyes overseas investments: Sudan, Pakistan etc. Source: Trademap 20

  21. Key Trends • Money printing and lack of investments: Oil demand will remain sluggish but oil prices will rise again, possibly dramatically • Asset management: More domestic, more strategic, more conservative. Less SWFs? • Lack of institutions: More domestic project finance, a GCC bond market and credit for SMEs necessary

  22. Thank You Gulf Research Center P.O. Box: 80758, Dubai United Arab Emirates www.grc.ae Tel: +971 4 3247770 Fax: +971 4 3247771

More Related