Germany and Italy extended their lockdown until after the Easter holiday and April 19 respectively. Eighty percent of the US economy is in lockdown. President Trump reiterated that the next few weeks would be very difficult.
While the worst is still to come for the US, the trajectory seems to be improving in some European countries. This has shifted the debate from lockdown to when and how economies can be restarted.
The first day of the second quarter looked grim across all major markets in response to the devastating first quarter.
GCC economies were also heavily affected by the impact of the virus, as most of them went into lockdown during March and suspended air travel.
Why it happened:
GCC economies still depend heavily on oil, which had its worst quarter ever. Tourism airlines and retail also were decimated.
Real estate is another important sector that was badly impacted by the shutdown of economies. The real estate sector in the UAE reached lows last seen in 2010. Emaar Properties is a good indicator, its share price retracting by 48 percent in the year to date. The situation looks similar for many in its peer group. This will reverberate in the construction sector as the economies resume economic activity.
Banks are exposed to all the aforementioned sectors, which has a big impact on the sector. Troubled hospital operator NMC defaulting on a $980 million loan has hit the portfolios of Abu Dhabi Commercial Bank and Commercial Bank of Dubai, as well as others. Expect the portfolios of banks throughout the region to deteriorate further as the outlook on the economies worsens.
Bahrain is the smallest of the GCC economies and by far the worst affected by the downturn. Its saving grace is that it usually has received help from its bigger neighbors. Oman is the second-worst affected.
The stimulus packages run at 30 percent of GDP for Bahrain and Oman, 10 percent of GDP for Kuwait and UAE and 4 percent of GDP for Saudi Arabia. The UAE were the first to announce a bailout package for the Emirates, which makes sense given that travel and tourism accounted for 13 percent of the country’s GDP.
If the crisis proved anything, it is that the strategy of Vision 2030 weaning the Saudi economy off its dependency on oil was correct, timely and important.
While the dollar peg of the currencies may be expensive to maintain amid the greenback's status as a haven currency, it does provide stability and investor confidence, especially as all GCC economies will need to look at foreign investment as oil prices remain lower for some time to come.
Brent was up 9 percent on the day, reflecting China replenishing its stocks and hopes that Saudi Arabia and Russia might resume talks: $27 per barrel is still way too low to balance any GCC budget.
Where we go from here:
Bank of America Chairman and CEO Brian Moynihan told Bloomberg that he was optimistic about a V-shaped recovery in the US, because he felt that the stimulus package targeted the right parts of the economy aiming to keep as many Americans as possible employed. This may be on the optimistic side.
The release of the US jobless claims at 8:30 EDST will probably send the next shockwaves through the system.
— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairman and CEO of business consultancy Meyer Resources.