THE changing economic news is going off like a badly organized fireworks display — with fresh items of information starbursting all over the sky. No one seems to know where the next rocket is coming from. The uncertainty is clearly panicking investors, with European and North American stock markets seeing sharp price falls.
This is no longer simply about the US subprime market. It is also about the price of oil poised to break $100 a barrel. It is about the continuing collapse of the value of the US dollar, particularly against the euro and the yen. It is about investors suddenly uncertain that the value of their investments can be maintained, let alone where they can now earn decent returns. Gold, the classic refuge in time of market turmoil, is close to breaking its $850 an ounce record and respected analysts are talking of $1,000 as probable.
It is important to remember that while the chaotic fireworks display of bad news is taking place in the world’s capital markets, its effect will be far greater than burning the fingers of overambitious investors. The capital markets are just that. They generate the working capital for companies to invest, fund research and development, grow their business and create new jobs and new wealth. The worker on the assembly line today may be doing his job just as diligently as yesterday, but if his company is trading in a poor market, there will be fewer customers for the products he makes because there is less money in people’s pockets. In the final analysis, if not enough people buy the things he produced, he too will have less money in his pocket, because he may end up with no job.
On the other hand, for us here in the Kingdom, $100 a barrel may seem like good news, even if the value of the dollars that we are receiving is falling. Allowing for that depreciation, in real terms our oil income is still increasing. Add to this the immense development taking place in the Kingdom, which will certainly sustain the internal economy and the fact that external suppliers will probably cut prices to win orders from us, and the future looks positive.
But unfortunately no country can consider itself cocooned from troubles in the rest of the world. Japan rode out the 1987 Western markets crash as if nothing had happened. That will not occur again. The Kingdom itself has overseas investments. As a WTO member and an integral part of the world economy, it is in our interests to see world trade and finance in a healthy state.
The markets are certainly undergoing considerable correction. It is payback time for those who pretended that with investments quality was far less important than opportunity and quantity. Even now speculators are driving on the oil price in futures trading. But recession — when any country experiences two successive quarters of negative growth — is not inevitable when investors seek, as at present, a return to quality and real value.
