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|11 January, 2019

GCC economies to focus more on diversification

Large amount of debt worldwide a fundamental concern for many economists

Image used for illustrative purpose. close up of businessman hand working on smartphone and laptop computer with financial business graph information diagram on wooden desk as concept.

Image used for illustrative purpose. close up of businessman hand working on smartphone and laptop computer with financial business graph information diagram on wooden desk as concept.

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The global economy will see slower growth in 2019, but the overall outlook remains positive for the GCC, with many countries such as the UAE focused on their diversification strategies, experts said.

Speaking at a media session, Michala Marcussen, group chief economist at Societe Generale, said the large amount of debt worldwide is a fundamental concern for many economists. The outlook for 2019 is one of slower growth in the global economy, but overall the impetus remains positive.

"High levels of debt in the global economy become particularly important if we are faced with a more abrupt slowdown globally. Interest rates are already at a very low level, so the ability to alleviate balance sheets by dropping them even lower is reduced. But, there are several positives as well: we can see strong fiscal impulse from the US, as well as low oil prices encouraging consumer spending," she said.

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She also noted that the share of zombie companies - firms that are at least 10 years old but unable to cover their debt servicing costs with profits - has continued to increase.

"There are more zombie companies in the system, which makes it a vulnerability and hints at lower productivity."

On the situation in the US, she noted that there was continued uncertainty with President Donald Trump's threats to keep the government shut for the next few months. "This could become a trigger for something much more negative for the US economy."

Edgardo Torija Zane, senior economist for the Middle East, Turkey at Central Asia at Societe Generale, noted that 2018 proved to be a good year for economies in the region, thanks to an increase in average oil prices. "Looking ahead into 2019, there is still a lot of uncertainty right now regarding oil prices," he said.

"Our assumption is that oil prices will average at $65 per barrel. It's a good price for many countries, but there is still going to be a need for reforms. When we look at the progress that has already been made in implementing reforms, what we have seen is reassuring. The challenge will be to ensure that the GCC economies continue to diversify their economic structures and ensure that growth will be inclusive. Another challenge will be to tackle the issue of unemployment among the younger population in many of the countries."

 

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