Middle East region 'not insulated' from global crisis

BEIRUT: Chief economist at Bank Audi said that the Middle East economy was not immune from the negative effects of the global financial crisis. “The regional economy was definitely not insulated from the global financial crisis. Most particularly, crisis spillovers manifested through fluctuations in oil prices and cuts in oil production, and through other transmission channels such as contractions in foreign direct investments as a result of weaker global trade activity,” Marwan Barakat, the group chief economist and head of Research at Bank Audi, told participants in the MENA Investor summit  in Riyadh, Saudi Arabia. 

Over 250 high-profile institutional and individual investors from the Middle East and North Africa (MENA) egion took part in the summit. 

According to recently published estimates of the International Monetary Fund this October, the region’s real growth is expected to slow down from 5.4 percent in 2008 to 2.0 percent in 2009, a rate that yet remains higher than the 1.7 percent figure estimated for emerging markets, the -3.4 percent real-growth figure for advanced countries, and the 1.1 percent estimate for the global economy. 

Barakat said that while the financial crisis undoubtedly left its imprints on the Middle East, the region’s economies responded differently to what is regarded as the most severe crisis in living memory. 

“For instance, Qatar’s economy is the fastest growing in the region, with long-term fixed price gas contracts alleviating adverse price fluctuation effects. In parallel, the UAE, significantly hit by the crisis, has implemented the largest bank bailout scheme in the region to date,” he added, referring to full-scale bank deposit guarantees and injections, in addition to the setting up of an emergency lending fund from the government

However, Barakat noticed that Lebanon has proved to be the most resilient banking sector, as evidenced by the spectacular 20 percent annual growth in bank activity since the crisis outbreak in September 2008, the highest such rate in the entire region. 

He said that when the global financial crisis outburst last year, there were fears that the Lebanese economy, typically an open economy with strong links to the outside world, could be hit by the crisis. 

“Some considered that the crisis transmission channels might be related to a possible decline in remittances from Lebanese residing abroad and experiencing a cut in income or even job losses in the hosting Arab and Western countries,” Barakat said. 

He added that few suggested that the real economic slowdown that Lebanon’s major foreign trade partners are witnessing might also impact Lebanese exports’ volume or price competiveness in general. 

“Others argued that Lebanon’s foreign direct investments might dwindle on lower liquidity in the region in the aftermath of the nosedive in oil prices and the slide of regional financial markets. 

“Some even believed Lebanon’s touristic sector, a vital sector to the domestic economy, would be negatively impacted by the contraction in regional touristic spending in the aftermath of the crisis,” Barakat maintained. 

He argued however, that empirical performance since the beginning of 2009 showed the opposite. 

“Indeed, Lebanese exports managed to almost maintain their high level reported over the previous year, as these exports consist more of necessity products rather than luxury and durable goods which demand could be negatively impacted by the global financial crisis,” Barakat said. 

Capital inflows into the country have clearly not been affected at all by the external environment, as Lebanon’s balance of payments registered a record high nine-month surplus of $4.8 billion and capital inflows rose by a solid 26 percent year-on-year. 

Foreign direct investments did not report a contraction, as mirrored by a number of real sector indicators, especially imports of investment goods, which have posted a 15 percent annual rise so far this year. 

Likewise, tourist arrivals registered a 46 percent yearly progression in the first nine months of this year, which is one of the highest growth rates in the world. 

Barakat added that the Lebanese banking sector demonstrated the most remarkable resilience to the global financial crisis, with total domestic banking sector assets rising by $15.6 billion in the first nine months of 2009, at 65 percent higher than the growth registered during the corresponding period of last year. 

Lebanon’s banking sector registered by far the best performance in the region, which subsequently raised its market share in the regional banking assets. – The Daily Star