JEDDAH: The global economic landscape is changing very rapidly with emerging markets playing an increasingly significant role.
Middle Eastern economies are likely to be another real growth story over the next few years — although they have not been immune to the immediate effects of the global financial crisis.
At the OPEC (Organization of Petroleum Exporting Countries) targeted floor price of $50 per barrel, the Gulf Cooperation Council (GCC) countries will cumulatively earn $4.7 trillion by 2020. This will be 2.5 times their oil earnings over the last 14 years, according to “Global Megatrends 2009”, a report by Ernst & Young, released recently.
“This will afford the GCC countries huge opportunities to buy up cheap assets or finance local infrastructure developments as the rest of the world’s economies stall. Their relatively moderate regulation and tax regimes will be even bigger attractions as European and US business environments tighten under the pressure of the ongoing global recession,” the report said.
Countries such as Egypt, Iran and Vietnam have been identified as potential rivals to the BRIC (Brazil, Russia, India, China) countries.
Emerging economies accounted for 44 percent of global GDP (gross domestic product) in 2007. While projected GDP growth rates for major developed markets in 2009 are now predicted to range between —0.2 percent and 0.5 percent, emerging markets are expected to grow at 6.1 percent on average, with China (9.3 percent) and India (6.9 percent) performing even better.
The growth of emerging economies may be less than what projected before the financial crisis, but they still demonstrate considerably stronger growth than the developed world.
“Their hunger for growth, alongside their rapidly industrializing economies and growing populations should set them on the path to recovery more quickly. In the case of China and Russia, their huge accumulated reserves (China with $1.9 trillion and Russia with $560 billion) are expected to ease the pain.”
The Ernst & Young report said capital markets had become increasingly globalized and independent, with the world’s foreign direct investment (FDI) flows running at over $1.8 trillion in 2007 and foreign investors owning over 25 percent of global equities.
Other trends include the rise of sovereign wealth funds, private equity and hedge funds as the new power brokers. Their combined assets quadrupled between 2000 and 2007 to reach $11.5 trillion. However, in the short-term, hedge funds and private equity firms will be under pressure, the report said.
Energy supply and demand is likely to represent the biggest challenge of the 21st century. More than any other issue, both are at the mercy of global economics, geopolitics, war, fiscal policy and the battle between growth and sustainability.
US oil prices witnessed high volatility in 2008, reaching an all-time high at $147.27 in the second half of the year, and dropping around $115 to the lowest level for almost 4 years to $32.40 later on December. This high volatility indicates that oil prices have been vulnerable to a number of short-lived developments, the Kuwait-based Global Investment House (Global) said in its report on oil activity in 2008.
Crude oil prices are expected to remain steady, ranging between $35-$55 per barrel in the first half of 2009, as the world waits for more economic indicators from developed countries and the consequences of the 2008 OPEC’s cut, which might lead to a shortage in oil supplies if signs of economic growth start to appear in the second half of the year, the Global report said.
Oil prices have risen above $37 a barrel after OPEC members said over the weekend they were considering more production cuts to adjust to diminishing global demand for crude.
Light, sweet crude for March delivery rose 11 cents to $37.62 a barrel by midafternoon European time yesterday in trading on the New York Mercantile Exchange.
In London, the March Brent contract rose 20 cents to $45.01 on the ICE Futures exchange.
The price of OPEC basket of twelve crudes stood at $42.13 a barrel on Friday, compared with $41.79 the previous day, according to the OPEC Secretariat.