Federal Reserve chairman Ben Bernanke sent ripples across markets when he recently reneged on a supposed certainty among financial analysts. Rather than tapering, or scaling back, the Fed’s bond purchasing program, which has buoyed markets through 2008’s fiscal storm, Bernanke left the taps untouched. As of now, the purchasing scheme that has been pumping nearly $85 billion and diluting interest rates will remain – at least until the next time Bernanke gets behind a microphone.
Needless to say, market indices were electrified at this unforeseen turn of events. Both the S&P 500 and Dow Jones Industrial Index hit record highs, topping previous marks of 1,709.67 and 15,658.36, respectively. The fervor was eventually felt on this side of the globe, with oil futures further fueling (no pun intended) their robust rise to new weekly highs.
"Some projections for the Middle East’s economies have wavered"
Economists have often debated the potential implications of an inverse relationship between the value of the US Dollar and oil prices. The quantitative easing program’s bond buying activities have not only brought down interest rates, but have also made the US currency more competitive by increasing its supply in the market, thereby depreciating its value for exports and otherwise. Numerous analyses have shown that a decrease in the value of the currency has led to elevated oil prices, given that barrels are priced in said currency. This has led to higher figures both in the long term, as in the case of futures, and on a contemporary market level.
Accordingly, for economic unions like the Gulf Cooperation Council and cartels like OPEC, the postponement of the Federal Reserve’s plans to taper QE3 by $10 billion to $15 billion a month may have actually benefited crude revenues. The stifling of global economic growth, however, would be quick to negate any gains in crude sales. This is especially the case if the government shutdown is followed by a default on American debt. In either case, futures contracts and the speculative nature of that niche market are based on investor sentiments, which require very little to rile.
In light of these recent developments, among others, some projections for the Middle East’s economies have wavered, but an outright shift for any nation does not seem to be likely. As the marketplace inaugurates Q4 2013, a brief roundup of the positive prospects and negative outlooks highlight where our region is headed.
POSITIVE: UNITED ARAB EMIRATES
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With gross domestic product expected to expand by 4.5% this year in the midst of a market revival, the UAE has emerged as an economic maverick among the Gulf countries, promoting all of its sectors in lieu of its petroleum. Needless to say, it has paid off. The hospitality industry in Dubai, which boasts occupancy rates that average over 85% throughout the year, is one contributing factor. Regardless of it being surrounded by a regional turmoil of historic proportions, tourists continue to flock into the Dubai International Airport. Even the stalled infrastructure spending in the fiscally conservative emirate of Abu Dhabi has started to regain its pace, leading the way for the continuation of numerous megaprojects. In fact, Abu Dhabi has just approved $4.3 billion in infrastructure and social welfare spending, such as roads linking Saudi Arabia to the UAE capital and the provision of housing loans to citizens. The Fujairah Terminal, currently being developed by several global firms in the midstream operations industry, has rattled the bunkering world, rivaling international ports in Singapore and Rotterdam.
Prodigious petroleum revenues aside, forecasts indicate that the non-oil economy alone is set to grow by 4.3% this year, making the United Arab Emirates the place to be.
Aside from the overcrowded and dismally managed seaport, Lebanon’s trade routes have been blocked off with the intensity of an embargo. Financial channels have not been spared either – recent claims of money laundering and terror-related charges have brought added scrutiny to one of the nation’s flagship sectors. Business Monitor International has just ranked Lebanon 112th out of a sample of 159 countries in terms of the level of risk stemming from the political and economic environment. The budget deficit for this year is approaching the $2 billion mark, and has increased by 67% relative to mid-year 2012. The source of this increase is a marked drop in public revenues, which have declined by 4.2% this quarter, according to the Ministry of Finance.
"The image is rather insidious"
Expenditures, however, have continued to rise regardless of the fact. Domestic and foreign political strife has all but desiccated economic growth, which is the lowest in the region and is consensually predicted to slide down to 1% by the end of this year.
The lack of a functional non-interim government has essentially left the Lebanese staring into a blurry mirror, straining for some degree of clarity. Until then, however, the image is rather insidious. Once the socio-political tensions diffuse, the outlook should follow suit.
It would be difficult to see any kind of reflection in the dark, anyway; out of 148 countries, the World Economic Forum’s Global Competitive Index ranked Lebanon as the worst nation in the world on the quality of its electricity supply.
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