Thursday, September 2, 2010

While the IMF forecasts growth to improve next year, unemployment and liquidity will still be issues for typical Gulf workers

Gross domestic product, liquid-ity and recovery have frequen-tly made headlines since the global recession began to take hold in mid-2007. But, how this trans-lates into the average household’s budget is often the main concern for readers across the region.

This difference in perspective was highlighted by the IMF’s Middle East director Masood Ahmed at the presentation of the fund’s regional outlook in Dubai yesterday.

While a recovery may be seen in the region’s economic data next year, Ahmed said it will take a lot longer to filter down to the average man-in-the street.

“The important thing is, as we look towards next year, even though we expect [GDP] to be growing,” Ahmed said, “Unemployment will continue to rise during the course of next year.”

The IMF data showed that non-oil GDP is expected to grow 3.2 per cent this year and by 3.9 per cent next year.

The US-based global fund also reported that government stimulus packages in the region would amount to $316.6 billion this year, while next year they are likely to increase to $332.9 billion.

However, yet again the worker on the street is unlikely to feel the benefit of these initiatives until at least the second half of next year.

“The economic data will say we are coming out of recession but most households, when they look at their own income and what is happening to their neighbours, they are not going to see this recovery when people are still losing their jobs,” said Ahmed.

“This will have social consequen-ces,” he added.

Increasing bank liquidity has been a focus of these stimulus packages, but, yet again, this has not had the desired impact for average workers in the GCC.

Ahmed believes the private sector is finding that its access to lending is still restricted. This was reiterated by Nasser Saidi, chief economist at the Dubai International Financial Centre Authority, who believes that, while there has been an injection of capital into the region’s banks, “precious little of it is going to the private sector”.

Mahdi Mattar, head of research and chief economist at Shuaa Capital, pointed out that the UAE govern-ment needs to do more to provide support for the mortgage and real estate sectors as residents, around 80 per cent of which are expats, are still struggling to secure mortgages.

Economies can rise or fall based on confidence and, in the UAE at least, this does appear to be still high, according to the latest Consumer Confidence Index (CCI) by the jobs web site Bayt.com, in conjunction with research specialists YouGov.

Around 40 per cent of those in the CCI survey believe that, while they are worse off than last year, the economy will improve in a year’s time. When official figures proclaim a recovery but they don’t feel it next year, will they be as enthusiastic?

The IMF did have one ray of sun-shine in relation to remittances, which have remained stable in countries such as Jordan, Lebanon and Pakistan.

This shows that Gulf investment in large infrastructural projects has actually benefited those at the lower end of the pay scales, which is good in anyone’s book.