Darker clouds, sunny horizon

With oil somewhere north of the $60 mark for sure, it actually continues to augur well for the region. That's the key point, standing in isolation from the developed economies.

It's that time of the year again. We are in December and bank researchers the world over are coming out with reams of research on the global macroeconomic prospects for 2008. So a recent despatch from BNP Paribas lies on my desk. Merrill Lynch in Dubai has sent an invitation for a talk next week on the year ahead. Doubtless there will be others. Nice to be thought of.

Generally rather dull by nature, these communications are not likely to be especially joyous in outlook this time round. Not so unexpectedly, BNP's report paints a somewhat cautious scenario, with the 'credit crunch' deemed to be still in play. There is a 40 per cent probability, it says, of the financial crisis turning the incipient slowdown into a full-blown recession. Ouch. Haven't heard that word in earnest for a while.

With credit constraints inhibiting borrowing "spending growth would be cut, with adverse effects on investment and equities," with GDP growth in the US, Eurozone and Japan likely to weaken. If the risks were to materialise, the US Fed is likely to cut interest rates "harder and quicker." Just when the dollar needed support instead.

The euro then "may further test the upside in the near term", as the laconic economist might say, "especially if GCC countries de-peg from the dollar without currency flexibility in Asia". In this region, we might have some thoughts about that, involving a certain amount of doubt.

It may not seem the cheeriest of forecasts. But, on a brighter note, there is of course the rest of the world to bring into view. We have heard a lot this year that the world has changed, and the US is no longer the only engine. Anybody mention China and India, and others besides? Emerging markets, apparently, "will weather the storm, supporting global growth and keeping commodity prices high." Such is the power, and therefore the lure, of the new investment world.

Implications

So, what does this all mean for the region? Nothing very much is explicit in the material offered, but we might make some deductions.

With oil somewhere north of the $60 mark for sure, it actually continues to augur well for the region. That's the key point, standing in isolation from the developed economies. Asian and other growing emerging markets are thought to be 'decoupling', more jargon entering the language, from the Western downturn.

In fact, more countries of the region are positively investing in these markets in recognition of the likely slowdown elsewhere.

The downside comes from the dollar. Negative real interest rates in the GCC present enough of a problem already. It leads BNP Paribas to believe that we will indeed see a revaluation of the Gulf currencies next year.

This is a hard one to judge. We heard last week that revaluation in the UAE may come as early as tomorrow. While the world may be moving towards a heavy slumber, here we might instead see a bright awakening.