What economic experts are certain of about 2021: More global uncertainty

2020 was the year of the biggest economic downturn in nearly a century, a brief but dramatic collapse in world commerce, and the most tumultuous year for crude oil in 50 years. 2021 looks likely to bring more uncertainty. (AFP/File Photo)
2020 was the year of the biggest economic downturn in nearly a century, a brief but dramatic collapse in world commerce, and the most tumultuous year for crude oil in 50 years. 2021 looks likely to bring more uncertainty. (AFP/File Photo)
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Updated 03 January 2021

What economic experts are certain of about 2021: More global uncertainty

2020 was the year of the biggest economic downturn in nearly a century, a brief but dramatic collapse in world commerce, and the most tumultuous year for crude oil in 50 years. 2021 looks likely to bring more uncertainty. (AFP/File Photo)
  • Most analysts agree there is a direct correlation between ending the COVID-19 pandemic and resuming growth
  • The hope is that 2021 will see continuity in the fundamental rearrangement of the global economy, at a slower rate

DUBAI: The year just gone was the Great Accelerator. This time last year, the experts were predicting a slight downturn in global economic growth, continuing tensions in global trading patterns, and a tricky but negotiable time for oil markets as renewable sources slowly bit into demand.

Instead, 2020 was the year of the biggest economic downturn in nearly a century, a brief but dramatic collapse in world commerce, and the most tumultuous year for crude oil in 50 years. The COVID-19 pandemic seized every negative trend in the global economy — and made it worse.

In the Middle East, especially among the oil-exporting nations, the pattern was the same. Economic contraction and plummeting oil revenues exacerbated fiscal pressures that had already been building, with the result that governments had to live with a higher level of debt than they would have liked, while dipping into reserves to tide them over the downturn. Fortunately, most of them still have deep financial pockets.




Economic contraction and plummeting oil revenues during the COVID-19 pandemic exacerbated fiscal pressures that had already been building in the Middle East. (AFP/File Photo)

Against that background of unpredictability, it would be rash to make any firm projections for what 2021 will bring.

Ellen Wald, consultant and author of the book “Saudi Inc,” wrote: “The truth is that on this New Year’s Eve, we hang a new calendar and head into the future with no certainty.”

There are many variables, but the big one remains the course of the pandemic and the effectiveness (or otherwise) of measures to combat it. The coronavirus is the determining factor for the global economy — most analysts agree there is a direct linear correlation between ending the pandemic and resuming economic growth.

INNUMBERS

2021

* 5.2% - IMF projection of global GDP growth in 2021.

* 6.4% - Morgan Stanley forecast of global GDP growth.

* 4.6 - IHS Markit projection of global GDP growth.

The consultancy IHS Markit believes there is light at the end of the tunnel: “While the COVID-19 virus will stay with us throughout 2021, the rapid development and deployment of vaccines will enable a transition to a new post-pandemic economy. Thus, we approach 2021 with a mixture of caution and hope.”

On the other hand, there seems little likelihood the world will be able to officially declare the pandemic over in 2021. The World Health Organization issued its highest category designation — “public health emergency of international concern” — last January when there were fewer than 100 cases worldwide, and it seems virtually impossible death rates will fall back to that level this year.




Muslim pilgrims converged on Saudi Arabia's Mount Arafat for the climax of this year's hajj, the smallest in modern times and a sharp contrast to the massive crowds of previous years. (AFP/File Photo)

While global markets have taken heart from the speedy rollout of vaccines, financial and logistical challenges mean it will be a long time before vaccines reach all, or even most, of the world — assuming people can be persuaded to take them.

Against this backdrop, the economic forecasters are grappling. The International Monetary Fund - the most widely accepted guide to the health of the global economy — predicts that global GDP will rebound to 5.2 percent growth in 2021, after a 4.4 percent crash in the “Great Lockdown”, but admits “the forecast rests on public health and economic factors that are inherently difficult to predict.

Other experts are less conservative. Morgan Stanley, the American investment bank, thinks the rebound will be 6.4 percent globally this year. Its chief economist, Chetan Ahya, said: “We maintain that consumers have driven the recovery, and investment growth — a reflection of the private corporate sector's risk tolerance and a key feature of any self-sustaining recovery — is bouncing back as well.”

Ahya added: “By March or April, we expect all geographies and all sectors of the global economy to be joining the recovery, with a stunning 9 percent GDP growth in China driving the resurgence.”




Some experts believe a global economic recovery is on the cards, with GDP growth in China playing the leading role. (AFP/File Photo)

That rosy view is not shared by all commentators. “Headwinds to robust near-term growth include COVID-19-related lockdowns in early 2021, lingering consumer and business caution, diminishing fiscal support, and the strains of rising public and private debt,” said IHS Markit, trimming its own GDP forecast to 4.6 percent in 2021.

For the other big engine of global growth — the US — the signals are more confusing. The IMF predicted American GDP would fall by 4.3 percent in 2020 before recovering 3.1 percent this year. But that forecast was made before the divisive and disruptive November election, which still has the capacity to impact the US economy.

Europe remains the potential problem in 2021, bedeviled by the impact of Brexit and the recent surge in new forms of the virus. A big drop of 8.3 percent in 2020, according to the IMF, will be only partially compensated by a 5.2 percent rise in 2021.




Britain said on Thursday, December 24, 2020 an agreement had been secured on the country's future relationship with the European Union, after last-gasp talks just days before a cliff-edge deadline. (AFP/File Photo)

For the Middle East, the IMF predicted a 4.1 percent decline followed by a 3 percent increase in 2021, with Saudi Arabia down by 5.4 percent in 2020 before recovering 3.1 percent, roughly in line with the assumptions made in the Kingdom’s own December budget.

Others are more optimistic about the pace of the Saudi recovery. Nasser Saidi, economics expert, told Arab News that he was penciling in 3.5 percent GDP growth for the Kingdom this year, as recovery from the economic lockdowns coincided with the diversification measures of the Vision 2030 strategy to reduce oil dependence.

One of the debates in the Kingdom in 2020 was whether the government had provided enough fiscal stimulus to combat the effects of the pandemic. While the amount of stimulus was low in comparison with other G20 countries, the counter-argument is that Saudi policymakers took such swift action to slow the spread of the virus that the drastic fiscal interventions of other countries were unnecessary.

Saidi agrees. “They did not need to inject as much as other G20 countries,” he said.




A handout picture provided by  Saudi Ministry of Media on July 25, 2020, shows travellers, mask-clad due to the COVID-19 coronavirus pandemic, waiting by a belt for their luggage at Jeddah airport as part of the first group of arrivals for the annual Hajj pilgrimage. (AFP/File Photo)

The other big imponderable in 2021 is whether the benign financial market conditions of last year can continue. Some pessimists spent much of the past year anticipating a big correction in global financial markets, which kept on soaring to new levels even as the global economy was heading deeper into the doldrums.

The S&P Index, the main barometer of global equity health, appeared to defy gravity, ending the year 15 percent higher at a new all-time record. The doubters pointed out that much of that increase was down to government stimulus packages that reached more than $11 trillion globally in the course of the year.

They also stressed that most of the equity value increase was due to the performance of a handful of US technology companies like Apple and Amazon, which exploited the new world of social distancing and telecommunicating during the pandemic. There appears little to contradict the argument that these companies have already reached a post-pandemic new normality, and that the equity rise will continue in 2021.




For the other big engine of global growth — the US — the signals and signs of economic recovery are a little more confusing. (AFP/File Photo)

In Saudi Arabia, financial markets also swam against the lockdown tide in 2020. The Tadawul had one of its best ever years, and generated big sums in initial public offerings. Against a background of ongoing economic recovery and improving oil revenue, most equities analysts see that rising trend continuing this year, when the privatization pace is due to accelerate.

For the Kingdom, as ever, much depends on the health of global energy markets. There were signs of a rebalancing and recovery in crude oil at the end of the year, with the OPEC+ alliance proving effective in limiting supply and putting a new floor under prices — $50 a barrel was sustained for most of December. Some analysts believe it could spike to as much as $65 in 2021.

If the coronavirus led to the “great reset” — in the words of the World Economic Forum founder Klaus Schwab — then economic forecasters must be hoping 2021 will see that fundamental rearrangement of the global economy continuing, but at a slower rate. The year just gone provided enough excitement to last a decade.

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Twitter: @frankkanedubai


Saudi Arabia starts trial of the first wind turbine in Al-Jouf

Saudi Arabia starts trial of the first wind turbine in Al-Jouf
Updated 05 August 2021

Saudi Arabia starts trial of the first wind turbine in Al-Jouf

Saudi Arabia starts trial of the first wind turbine in Al-Jouf
  • Dumat Al-Jandal is poised to become the largest wind farm in the Middle East

RIYADH: Saudi Arabia has started the operational trial of the first wind turbine at Dumat Al-Jandal wind farm, which once fully operational will reduce CO2 emissions by nearly 1 million tons annually and supply 72,000 homes with clean energy.

The turbines comprise towers, blades, and nacelles, which will be assembled at the project site, 900 kilometers north of Riyadh in the Al-Jouf region. The project will include 99 Vestas wind turbines, each with a hub height of 130 meters and a rotor diameter of 150 meters.

The Kingdom’s first utility-scale wind-power source is being developed by a consortium led by EDF Renewables of France in partnership with Abu Dhabi-based Masdar. The Renewable Energy Project Development Office of Saudi Arabia’s Ministry of Energy awarded the project to the EDF Renewables-Masdar consortium in January 2019 after a competitive tender.

Its tariff of $21.3 per megawatt-hour (MWh), the lowest bid submitted, was reduced to $19.9/MWh at financial close, making Dumat Al-Jandal the most cost-efficient wind-energy project in the world. According to the US-Saudi Arabian Business Council, the development of Saudi Arabia’s renewable energy sector could create up to 750,000 jobs over the next decade, as the Kingdom pushes to generate 7 percent of its total electricity output from renewables by 2030.

It will also benefit from a 20-year power purchase agreement with the Saudi Power Procurement Co., a subsidiary of the Saudi Electricity Co., the Kingdom’s power generation and distribution company. Saudi Arabia’s renewable energy program aims to contribute to a sustainable future, preserve nonrenewable fossil fuel resources, and safeguard the Kingdom’s international energy leadership, according to the King Abdullah City for Atomic and Renewable Energy. That way, the program aims to ensure greater long-term global energy market stability.

Renewable energy projects, including wind and solar, are planned across more than 35 parks in Saudi Arabia by 2030.


Saudi youth move away from cash, says report

Saudi youth move away from cash, says report
Updated 05 August 2021

Saudi youth move away from cash, says report

Saudi youth move away from cash, says report
  • Revenue in the Saudi e-commerce market is projected to reach $7.05 billion in 2021, according to data firm Statista

RIYADH, DUBAI: Saudi youth are increasingly drawn toward using digital payment channels rather than cash, a trend indicating that the Kingdom’s plan to create a cashless society is on course.

Only 18 percent of Saudis aged between 16 and 22 years use cash, while almost half of the people who are 60 and above still prefer using cash, a report by Fintech Saudi showed.

The report also showed that only 20 percent of the population in the central region of Saudi Arabia, which includes the capital Riyadh, use cash in their everyday transactions, while 37 percent of those living in the western region, use paper money in their daily dealings.

The use of paper currency is declining at a rapid pace.

Fintech Saudi survey results showed that around 60 percent of individuals Kingdom-wide still use paper money at least once a week and one out of four people in Saudi Arabia uses cash every day.

Under Saudi Vision 2030, the Kingdom aims to increase the number of non-cash transactions to 70 percent by 2025.

“The coronavirus disease (COVID-19) outbreak has led to an acceleration in cashless activity with digital payments increasing by 75 percent over the last year, while cash withdrawals from ATMs and other payment points have declined by 30 percent over the same period,” the report said.

Revenue in the Saudi e-commerce market is projected to reach $7.05 billion in 2021, according to data firm Statista. 

The numbers are expected to show an annual growth rate of 5.38 percent in the coming years, resulting in a projected market volume of $8.69 billion by 2025.


Gulf economies expected to grow 2.2 percent this year, says World Bank

Gulf economies expected to grow 2.2 percent this year, says World Bank
Updated 05 August 2021

Gulf economies expected to grow 2.2 percent this year, says World Bank

Gulf economies expected to grow 2.2 percent this year, says World Bank
  • Most GCC countries are expected to continue to post deficits over the coming years
  • The countries that posted the largest deficits in 2020 — Bahrain, Kuwait and Oman — are expected to remain in deficit until 2023

RIYADH: Economies of the Gulf Cooperation Council (GCC) will likely grow at an aggregate 2.2 percent this year after a 4.8 percent contraction last year caused by the pandemic and lower oil prices, the World Bank said on Wednesday.

“With recent progress made with the rollout of the COVID-19 vaccine globally and with the revival of production and trade worldwide, the prospects for an economic recovery are firmer now than at the end of last year,” it said in a research report.

“Although downside risks remain, the forecast stands for an aggregate GCC economic turnaround of 2.2 percent in 2021 and an annual average growth of 3.3 percent in 2022–23.”

It remains vital for GCC countries — which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE — to diversify their economies, the World Bank said, as oil revenues account for over 70 percent of total government revenues in most GCC countries.

It said it expects Kuwait and Qatar to introduce a value-added tax (VAT) this year, following the example of other GCC states that have implemented the revenue-diversifying measure in different phases over the last few years.

On the fiscal side, most GCC countries are expected to continue to post deficits over the coming years, the World Bank said, after shortfalls intensified last year because of the coronavirus crisis.

The countries that posted the largest deficits in 2020 — Bahrain, Kuwait and Oman — are expected to remain in deficit until 2023, but with narrower ratios than in the 2020 downturn. While a rebound in oil prices may lift economic prospects in the short term, the World Bank said downside risks to its outlook are “extremely high” because of the region’s heavy exposure to global oil demand and the service industries.

“Mobility restrictions including for international travel may hurt attendance at future high-profile events in the GCC — the 2020 (rescheduled to 2021) World Expo in the UAE and the 2022 Federation Internationale de Football Association (FIFA) World Cup in Qatar,” it said.


SABB records net profit of $504 million

SABB records net profit of $504 million
Updated 05 August 2021

SABB records net profit of $504 million

SABB records net profit of $504 million

JEDDAH: The Saudi British Bank (SABB) recorded a net profit after zakat and income tax of SR1,889 million ($504 million) for the six months ended on June 30, 2021.

This is an increase of SR7,785 million or 132 percent compared to the loss of SR5,896 million for the same period in 2020.

Operating income of SR3,984 million for the six months ended June 30, 2021, a decrease of SR703 million, or 15 percent, compared to SR4,687 million for the same period in 2020.

Lubna Suliman Olayan, board chair of SABB said: The bank’s “performance in the second quarter of 2021 builds on the progress made in the first quarter of the year, as we continue the implementation of our five-year strategic plan.”

She said the bank is now focused on supporting the Kingdom’s economic transformation.


Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban

Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban
Updated 04 August 2021

Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban

Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban
  • The Houthi ban has forced travelers to Sanaa and other areas controlled by the militant group into buying old banknotes from the black market at a higher rate

ALEXANDRIA: The Central Bank of Yemen in Aden has injected billions of riyals in old large-sized 1,000 banknotes into the market to address a chronic shortage of cash.

The bank also implemented several other economic measures to control the chaotic exchange market and put an end to the fall in the Yemeni riyal.

Since late 2019, the Iran-backed Houthis have banned the use of banknotes printed by the Yemeni government in Aden, creating a severe cash crunch in areas under their control which has led to local exchange firms and banks stopping paying salaries and raising remittance charges.

The Houthi ban has forced travelers to Sanaa and other areas controlled by the militant group into buying old banknotes from the black market at a higher rate and carrying Saudi riyals or US dollars.

In a challenge to the Houthis, the central bank has put billions of riyals in old banknotes into the market and started withdrawing the newly printed 1,000 banknote. Yemenis can get old banknotes from local banks and exchange firms.

However, the Houthis warned people against using the large banknotes and published copies and serial numbers of the newly circulated cash.

In a bid to regulate the exchange market and curb the plunging value of the riyal, the central bank has tightened regulations for opening new exchange shops or firms, demanding that applicants produce a three-year feasibility study prepared by a certified accountant showing estimated budgets.

Existing exchange companies must now send their annual financial statements to the bank, use an approved software for their financial activities, apply international financial reporting standards, and audit their accounts by accountants certified by the central bank.

Some Yemeni economists, however, have cast doubt over the central bank’s ability to enact the regulations after the Yemeni riyal on Wednesday broke another historic record low against the dollar.

Local money traders told Arab News on Wednesday that the Yemeni riyal was trading at 1020 to the dollar in government-controlled areas, compared to less than 980 a month ago. When the war broke out in late 2014, the Yemeni riyal was sold at 215 to the dollar.

The Yemeni government previously relocated the central bank’s headquarters from Sanaa to Aden, floated the Yemeni riyal to bridge the gap between the official rate and the black market, closed many exchange shops, and printed billions of riyals to pay public servants. But all the measures proved ineffective on the ground as the Yemeni riyal continued to drop.

Waled Al-Attas, an assistant professor of financial and banking sciences at Hadhramout University, told Arab News: “The central bank is required to control the market and close unlicensed exchange shops in parallel with tightening control and procedures on existing exchange entities.”

He noted that the latest injection of cash into the market had boosted foreign currency speculation activities and pushed up inflation.

“The large 1,000 banknote that the central bank pumped into the market represents an additional burden and additional liquidity that will cause more inflation, higher prices, and speculation on exchange rates,” he added.

The continuing devaluation of the Yemeni riyal has pushed up food and fuel prices in government-controlled areas and triggered protests.