Dubai: Gulf economies need to be resilient and agile to global economic changes to withstand the huge uncertainties in global economic events, said Dr Mohamed El-Erian, chief economic adviser at Allianz and Chair of President Obama’s Global Development Council.
El-Erian expects oil to trade in the range of $50 to $60 (Dh183.65 to Dh220.38) this year, if not for any major supply shocks.
“The demand side of the market looks supportive while the supply side is being stabilised by the recent Opec and non-Opec deals on supply cut. The non-Opec deal gives lot more bite to Opec’s efforts to curb supplies. This agreement has much better chance [of success] than the previous agreements,” he said.
While the changes in the US monetary policy are expected to be reflected in local interest rates, real effective exchange rates and liquidity due to dollar-pegged currencies in the GCC, El-Erian said the impact will be minimal as the Fed rate hikes are going to be gradual on a low base and are going to be spread over a period.
In the short to medium term, the dollar’s strength could work against the nascent economic diversification efforts of Gulf economies, but El-Erian said as the rate hike comes with higher growth, the region could benefit from higher oil prices.
“We are not talking about a sharp increase in interest rates when the US economy is facing stagflation. On the contrary, the hike comes at a time when the economy is growing in excess of 2.5 per cent.”
