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


Qatar may allow 100% foreign ownership of listed companies

Qatar may allow 100% foreign ownership of listed companies
Updated 6 sec ago

Qatar may allow 100% foreign ownership of listed companies

Qatar may allow 100% foreign ownership of listed companies
DUBAI: The Qatari cabinet approved a draft law on Wednesday that would allow non-Qatari investors to own up to 100 percent of the capital of companies listed on the Qatar Stock Exchange, according to a statement on Qatar News Agency.

Should the law be implemented, companies would have to approve increases in foreign ownership on a case-by-case basis, Bloomberg News reported.

Such a change could lead to inflows of about $1.5 billion into listed Qatari companies, with beneficiaries potentially including Qatar Islamic Bank, Masraf Al Rayan and Commercial Bank of Qatar, Bloomberg cited investment bank EFG-Hermes as saying.

Foreign ownership of many Qatari companies currently sits way below the 49 percent limit. Qatar General Insurance had 32 percent foreign ownership as of April 14, Gulf Warehousing 30 percent and Commercial Bank of Qatar 21 percent, Qatar Stock Exchange data shows.

Saudi Arabia dropped its cap on ownership of publicly traded companies by foreign strategic investors in June 2019, while the UAE said in July of the same year it would allow the emirates to set their own foreign-ownership limits.

Qatar eased rules on foreign property ownership in October last year in an attempt to make the sector more attractive to expatriates, foreign investors and real estate funds.

Turkish lira trades flat ahead of central bank rate decision

Turkish lira trades flat ahead of central bank rate decision
Updated 50 sec ago

Turkish lira trades flat ahead of central bank rate decision

Turkish lira trades flat ahead of central bank rate decision
ISTANBUL: Turkey’s lira traded flat against the dollar on Thursday, ahead of the new central bank governor’s first rate decision, where the bank is expected to maintain its policy rate at 19 percent.
The lira stood at 8.0530 against the dollar at 0647 GMT, near Wednesday’s close of 8.0655. Last month, the lira weakened to near its record lows after President Tayyip Erdogan appointed Sahap Kavcioglu as central bank governor, replacing his predecessor in a shock decision.

Dubai logistics firm Tristar drops IPO plans

Dubai logistics firm Tristar drops IPO plans
Updated 15 April 2021

Dubai logistics firm Tristar drops IPO plans

Dubai logistics firm Tristar drops IPO plans
  • Tristar began its public share sale on April 4, setting a price range that implied a market capitalization of 2.64-3.24 billion dirhams
  • The company saw weak demand for its shares, said two sources familiar with the matter

DUBAI: Logistics firm Tristar has dropped plans for an initial public offering (IPO) in Dubai, with sources saying the deal did not attract enough investor demand.
The move, which confirms what the sources had earlier told Reuters, is a setback for Dubai’s bourse, the Dubai Financial Market, which has not seen a big ticket listing since 2017.
The company said “its board and existing shareholders have decided to withdraw its planned initial public offering on the Dubai Financial Market as existing shareholders’ expectations were not met.”
“The board and existing shareholders believe that greater returns can be realized executing Tristar’s current growth strategy under the established shareholder structure,” it said.
Tristar began its public share sale on April 4, setting a price range that implied a market capitalization of 2.64-3.24 billion dirhams ($719-$882 million).
The company saw weak demand for its shares, said two sources familiar with the matter. The offering was planned to close on April 15.
Part-owned by Kuwaiti logistics firm Agility, Tristar had previously intended to list in London, but plans were scrapped after turmoil at London-listed health care firm NMC shook investor confidence in Gulf companies.
Tristar said earlier this month it expected to raise between 438 million and 537 million dirhams as part of its primary offering, and another 90 to 240 million from a secondary offering.
BofA Securities and Citigroup were global coordinators and joint bookrunners on the deal.


Saudi Arabia cuts maximum subsidized housing loans by five years

Saudi Arabia cuts maximum subsidized housing loans by five years
Updated 15 April 2021

Saudi Arabia cuts maximum subsidized housing loans by five years

Saudi Arabia cuts maximum subsidized housing loans by five years
  • Targets people who earn SR14,000 or less
  • Subsidized loans first implemented in 2017

RIYADH: Saudi Arabia has reduced the maximum period of subsidized housing finance from 25 years to 20 years for new applications, 2021, the Ministry of Municipal and Rural Affairs and Housing said in a circular on Tuesday. The change took effect from April 12.
The ministry said that this decision was "in line with the strategy of the housing program for the second phase, to serve the largest number of target groups,” the Al-Watan newspaper reported.
The subsidized mortgage loan program was first implemented in June 2017.
It provides a real estate loan with up to 100 percent, for those whose salary is SR14,000 or less, with a guarantee (on the amount of the profit margin) of up to SR500,000 of the financing amount.
This program targets Saudi citizens who are on the housing support lists of the Real Estate Development Fund, and who meet the Ministry of Housing conditions.


Erdogan’s new dove: Five questions for Turkey’s central bank

Erdogan’s new dove: Five questions for Turkey’s central bank
Updated 15 April 2021

Erdogan’s new dove: Five questions for Turkey’s central bank

Erdogan’s new dove: Five questions for Turkey’s central bank
  • Erdogan fired latest governor last month
  • Dismissed two days after he raised interest rates

ISTANBUL: Turkey’s fourth central bank chief in less than two years will oversee his first policy decision on Thursday, after President Tayyip Erdogan rocked financial markets by firing a well-respected governor who had hiked rates just last month.
Erdogan replaced Naci Agbal, a policy hawk, with Sahap Kavcioglu, who has openly criticized Turkey’s tight monetary stance and who shares the president’s unorthodox view that high interest rates cause inflation.
The shock decision on March 20 raised expectations that the policy rate, now at 19 percent, would soon be cut and sent investors fleeing, knocking the lira 12 percent lower. For many analysts, Erdogan’s latest intervention has left the bank’s credibility in tatters.
Here are five questions ahead of the bank’s policy decision this morning:

1. WHAT HAS HAPPENED SINCE LAST MONTH’S RATE HIKE?
On March 18, the bank under Agbal raised rates by 2 percentage points — more than had been expected — to address inflation that was headed beyond 16 percent, and to reinforce his hawkish rhetoric. Two days later, early on a Saturday morning, he was fired.
Minutes after trading began the following Monday, the lira had plunged as much as 15 percent, to 8.485 versus the dollar, leaving it just above the record low hit the day before Agbal was appointed in November 2020.
Stocks had their worst selloff since the 2008 global financial crisis as foreigners dumped nearly $2 billion in Turkish assets in a week. The cost of insuring investments using credit default swaps jumped by 150 basis points to 450 bps.
“Because the whole change of governor has come in such a surprising fashion, the market is quite skeptical,” said Reza Karim, assistant fund manager, emerging markets debt, at Jupiter Asset Management, which has CDS insurance on an already “underweight” Turkish position.
“If they stay put ... and maintain the hawkish policy then that’s a positive sign,” he said of Thursday’s rates meeting.

2. WHERE DOES THE NEW GOVERNOR STAND?
Kavcioglu, a former banker and lawmaker in Erdogan’s ruling party, wrote in a newspaper column as recently as February that high rates do not help the economy and “indirectly cause inflation to rise.”
Since taking the job, he has downplayed those views and promised tight policy for a while given high inflation.
Asked on a call about his past columns, he told investors he would now act in line with his “institutional task” and urged them to “judge me after” the April policy decision, according to sources who took part in the call.
The assurances have resonated — for now.
All but two of 19 economists polled by Reuters expect Kavcioglu to hold rates this week. Oyak Securities said the lira could weaken if the bank’s post-meeting statement removes a reference to raising rates if needed, while Morgan Stanley warns a surprise cut would trigger a 15-20 percent plunge.

3. HOW IS POLICY LIKELY TO CHANGE?
Beyond this month, Kavcioglu is expected to cut rates sooner than would have happened under Agbal, whose hawkish moves sparked a brief lira rally that reversed a years-long exodus of foreign funds.
Five of 14 poll respondents predicted policy easing before mid-year, while seven forecast a move in the third quarter. Yet over the next two years, money markets appear to be betting rates will end up higher due to inflation pressure.
Premature rate cuts that further weaken the lira could, in turn, prompt Turkey to consider adopting some form of capital controls, some analysts say. The government has firmly dismissed this option.
“If you can’t raise rates and you don’t have sufficient reserves, then you don’t have any other choice if you want to limit exchange rate depreciation,” said Morgan Stanley’s chief economic adviser Reza Moghadam, a former IMF regional head.
“A lot of central banks that have reserve difficulties get into those (controls) but it doesn’t usually end well.”

4. WHAT ARE THE RISKS FOR INVESTORS — AND FOR TURKEY?
Investors were drawn by higher yields as Agbal adopted one of the tightest monetary policies in the world. After he was fired, sparking some big losses, some investors said they would not come back.
Ratings agencies say the reaction to Erdogan’s decision — and the harm it does to monetary policy independence — raises the risk of a balance-of-payments crisis given Turkish banks and companies have some $160 billion in short-term foreign debt.
The buffer against such a crisis is thin: a costly and unorthodox policy in 2019-2020 of selling some $128 billion in dollars to support the lira has depleted the central bank’s FX reserves by about 75 percent.
The lira’s slide, along with higher oil prices, has meanwhile raised import prices and pushed inflation up to 16.2% in March. Wall Street banks predict it will reach as much as 19 percent this quarter, keeping basic living costs high for Turks hit by the pandemic and joblessness.

5. WHAT DOES ERDOGAN WANT?
Reuters reported that Erdogan ousted Agbal for two reasons: his long-held aversion to high rates, and politics.
Erdogan was uncomfortable with Agbal’s investigation into the $128 billion in FX sales undertaken during his son-in-law Berat Albayrak’s stint as finance minister, sources said.
Agbal had promised to rebuild the FX buffer and the government has promised to stick to free-market principles. But analysts say the bank could revert to FX interventions under Kavcioglu.
Erdogan — who has shoved out three central bank governors in two years — called for single-digit rates again this month.
“Comments from Erdogan confirm his desire to cut rates rapidly and so there is clear risk of a dovish surprise this week,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
“The economy is suffering greatly from the pandemic and Erdogan is desperate to inject some stimulus quickly,” he said.