DUBAI, 18 November 2007 — The Gulf states should no longer be seen as oil-based economies but rather as asset-based economies, according to Dr. Nasser Saidi, chief economist with the DIFC Authority and executive director of Hawkamah.
Addressing the DIFC Week that kicked off yesterday at Dubai International Financial Center, Saidi said in “the foreseeable future, the income from assets and net foreign assets will exceed the income from oil for these countries. For them, interest rates will matter more than oil prices.”
He noted that Gulf countries’ foreign reserves have been growing throughout the decade and are approximately $365 billion in 2007 and set to grow to $455 billion in 2008. The total MENA foreign reserves are nearly $1 trillion, he added.
Because the region is more asset-based and has higher levels of liquidity than in previous oil price booms, it can better handle negative economic shocks from the rest of the world.
He said that the region is “living in an economic renaissance” in large part, because of the “unprecedented value and depth” of investments in infrastructure, which now total more than $1.3 trillion.
Robert Shiller, professor of Economics, Yale University, in his speech warned that possible speculative bubbles in stock, real estate and oil markets could cause instability in the global economy.
“Perhaps we have gotten a little too confident in the global economic growth. The problem is high oil, stock and real estate prices. There is a question about whether all this can be explained by low interest rates. This is a question that I can’t authoritatively answer. But I believe that a substantial part is speculative bubble thinking. We have gotten too confident of the prices in these markets. The unwinding of these markets is the most serious risk facing these markets today,” he said.
He also warned that stock markets in emerging countries such as China, Brazil and India are up sharply, partly justified by underling growth and earnings, but suggested that the rise is not fully justified by these causes.
“Real estate is another market that’s bubbling,” Schiller said. Looking at home prices in the Netherlands, Norway and USA,” he said that historically high prices in these markets in recent years, suggest “we are entering a new era of real estate speculation that is unprecedented.
Stephen Roach, chairman of Morgan Stanley Asia, said that hot emerging markets will be hurt by any slowdown in the US economy.
Predicting that the US economy would enter recession in 2008, Roach said that US consumers drive the demand side of the global economy, while hot emerging economies “do not have as much dynamism on the demand side” as many people suggest.
“If US consumer spending slows in a material way, it is mathematically impossible for China and India to fill the void. The key question for the global outlook and for export-dependent countries is the fate of the US consumer,” he said, arguing against the theory of a decoupling of emerging economies from those of the US and Europe.
He noted that US consumption is worth $9.5 trillion, compared with $1 trillion in China and $650 billion in India.
The DIFC Economic Forum is an event developed with the support of the Economist Intelligence Unit.
The forum, opened by Dr. Omar Bin Sulaiman, governor of the Dubai International Financial Center, will run through Friday. It has a lineup of more than 100 speakers who will address the principal issues, challenges and opportunities of the world’s current and emerging financial markets.