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Economic experts in the UAE have allayed fears that the world economy or US is heading into another recession.
It’s more than 10 years since the American housing bubble burst and the ensuing global financial crisis broke, and discussions are rife that the next crisis is imminent.
The United Nations’ trade and development body, UNCTAD, said in a recent report that a recession in 2020 is “now a clear and present danger,” while some surveys have indicated that the financial community is concerned that such an event will likely happen soon.
“Most people are worried about what is going on in the world economy. This is influenced by political headlines impacting the region. This has also impacted the mood or sentiment of investors,” said Diego Wuergler, head of investment advisory at Julius Baer, during a press briefing in Dubai.
He said people are particularly concerned that the US, which sets the tone for the markets globally, is heading towards troubled waters, considering that the US economy has consistently been on the rise for 11 straight years and that the upward trajectory has to fall at some point.
“People say that this [consistent growth] is a record and this has to end. And my answer to this is very clear: you don’t have an economic cycle which just dies because it is old,” said Wuergler. He pointed out that the economic fundamentals are still sound, with the two most important markets, real estate and labour, still doing “fine.”
When asked for comment, Daniel Richards, Emirates NBD’s economist for the Middle East and North Africa (MENA), said they don’t share with the popular view that a Great Recession is happening soon, despite the US recovery already having exceeded previous records.
He said that while there are some issues in the US’ trade wars that have yet to be resolved, the signing of a phase one deal with China last week should temper some concerns and see a modest uptick in investment. He added that a “looser monetary policy could also provide a shot in the arm.”
“While we consider global recession fears overblown, the growth recovery from last year’s multi-year low will be tepid at best, and the risks are weighted to the downside,” Richards told Zawya.
What is instead expected to happen this year, Richards added, is that the American and Chinese economies will go through a moderate slowdown, while the Eurozone will see flat growth. “But even this could undershoot with an escalation of protectionism or geopolitical tensions this year,” he said.
In its report released in September 2019, the UNCTAD noted that there have been “warning” signs everywhere that the financial floor will drop out soon. It cited the trade tensions between China and US, currency movements, corporate debt, no-deal Brexit and inverted yield curves.
It said that many “big emerging economies” are already in recession, while some advanced markets, such as Germany and the United Kingdom (UK), are moving “dangerously close.”
The report called on policymakers to heed the warning signs and “prepare for the storm ahead” by adding jobs and increasing salaries and public investments, instead of getting too worked up about stock prices, quarterly earnings and investor confidence.
In a survey conducted by Fortune and Civis Analytics in December 2019, more than half (58 percent) of 1,300 investors said a recession is likely in 2020.
The International Monetary Fund (IMF) has recently forecast that the growth in global output will stand at 3 percent in 2019, the slowest expansion since the 2008-2009 recession.
(Writing by Cleofe Maceda; editing by Seban Scaria)
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