Infrastructure vital to maintain boom

Dubai: While oil prices are crucial for the countries of the region to sustain their economic boom, how the boom is managed is equally important, the chief economist and strategist of American Express Bank told Gulf News in an exclusive interview.

"It has a lot to do with the infrastructure. Ultimately, governments largely control that and so they have a big say in how that is developed. That's going to be crucial going forward. Infrastructure is vital to maintaining an economic boom and as a source of jobs as well," said John Calverly, who was visiting Dubai early this week.

But he also said that the right way to finance it has to be more than just government spending.

"If the government fin-ances it purely from its own money, then that can add to the inflation issue," Calverly said.

In a freewheeling interview, he touched upon various topics that included the decline of the dollar, inflation, revaluation of the local currencies that are pegged to the dollar and chances of a US recession and, consequently, a global slowdown and what that would mean for the region.

In terms of the impact of the dollar weakening on the region, obviously it has an inflationary effect which can't be avoided, he said.

"And that in a way is bad news because it hurts people on fixed incomes. It also creates bubbles in prices, but I don't actually think Dubai is in a bubble at the moment. Yes, inflation is an issue, but the fall in the currency means you get an economic boom here. Most people like economic booms."

Although personally he is in favour of floating exchange rates because it is better to allow exchange rates to take the strain, he doesn't see the countries still pegged to the dollar going for a revaluation.

"They will simply live with the inflation," Calverly said.

Threat of recession

The economist does not foresee a US recession next year, though he did not rule one out within the next three or four years. But if recession were to hit, there could be two fallouts, he said. One, oil prices could be under downward pressure, and the other is investor risk aversion, particularly interest in property.

"A lot of people are looking for the next place to invest and they have chosen Dubai as one of those places. Put in world recession and that would change. You would see less money coming into the region."