Is the region on the verge of another ‘great depression’ reminiscent of 2008?
Plummeting GDPs, fluctuating oil prices, a drying up of liquidity, weaker market sentiments, frequent rising or falling prices due to inflation or deflation… these are some of the predicaments that the Middle East region is jostling with for over a decade. So are these the signs of another economic meltdown looming over the head of this region? Or is it high-time to start preparing for the next financial crisis now?
If we go by the words of the world’s second richest man Bill Gates, co-founder of Microsoft, then a financial trouble similar to the 2008 Great Recession is a certainty in the coming future. While participating in a Reddit ‘Ask Me Anything’, Gates said that another economic crisis one is heading toward the US.
“Yes. It is hard to say when but this (economic crisis) is a certainty,” UK-based Daily Mail quoted Gates by attributing it to CNBC.
Alarming bells for the region
Leading financial experts in the region believe that local economies should adopt robust measures to thwart any situation similar to the 2008 economic meltdown.
“I think one of the biggest economic challenges is our oil dependency. In the past regional economies used to have surplus of more than 10% (on average) on the budget, whereas, currently, they are running a fiscal deficit of just under 10%. So earlier we used to have budget surplus, but now we have deficits,” Khalid Abdulla-Janahi, leading economist and Chairman of Vision 3, told TRENDS.
Janahi also emphasized on resolving the issue of pegging the local currency against the dollar as it matters when it comes to long-term economic prosperity.
“Another problem is that we are still pegging our currencies to the dollar, so we are being hit from two sides – on one side, our budget reserve is used to cover deficits, then, on the other, it is used to maintain the issue of pegging our currency to the dollar,” added Abdulla-Janahi.
Economists are of the view that the phase of structural reforms has also ushered in the phase of many challenges in the Gulf region.
Dr. Fahad Alturki, Chief Economist and Head of research, Jadwa Investment, Riyadh, told TRENDS, “The GCC region is currently going through a period of structural economic reform, which has brought about a number of challenges. Subdued oil prices, domestic energy price reforms and sizable fiscal adjustments since 2015 have resulted in a period of subdued growth. While the GDP is expected to rebound mildly in 2018, the process of economic restructuring will continue and, with it, short-term challenges are likely to persist.”
Sovereign funds come to rescue
In this phase of economic uncertainty, state-owned funds could come to the rescue of sagging economies in the region.
“The state-owned funds are extremely important for economic transformation. Since Saudi Vision 2030 is a very ambitious program, you do require a robust government institution to lift the private players so that they reach a standard that gives them a chance to compete globally,” Dr. Lama Al Sulaiman, Board-member of Jeddah Chamber of Commerce, told TRENDS.
She added: “The PIF (Public Investment Fund) is also working to create a robust infrastructure for the private sector to help it make most out of the opportunities thrown by the changing economic scenario.”
The 2008 economic meltdown came when a crisis in the subprime mortgage market hit the US, but gradually grew into a new Great Recession with global impact. Its effects were experienced worldwide for many years and financial experts deem it to be the worst financial crisis since the early 20th Century Great Depression. According to CNBC, even a decade after the recession, an estimated one in three Americans has not financially recovered.
Robert James Shiller, US-based leading economist and Nobel laureate, advised the economies to stay extra cautious despite a mysterious growth in economic confidence.
While speaking exclusively with TRENDS, he said, “We have this mysterious growth in confidence, on an average across the world and it is also confirmed by a research at the Organization for Economic Cooperation and Development (OECD). However, nobody knows authoritatively, why it is happening but there could be a turn-around in this level of confidence. History shows that things boom but it seems we might be forgetting about the previous financial crisis.”
This articles first appeared in AMEinfo’s sister publication TRENDS