The rapid spread of COVID-19 in early 2020 caught sent shockwaves through the global economy. The lockdown in the second quarter during the first wave of the pandemic triggered the sharpest economic contraction in history.
It was then followed by the fastest recovery on record, thanks to a number of monetary and fiscal policy measures implemented across the US, Europe, and many emerging markets.
Britain’s exit from the European Union on January 31, and an oil price war triggered in March 2020, conspired to ensure an eventful year. Regionally, the GCC has not been immune to the hiatus in global growth, but suffered from the double-whammy of sharply lower oil prices and of pandemic-induced restrictions on economic activity.
Bahrain and Oman, the most vulnerable in the GCC, saw a significant deterioration in fiscal and external position. However, GCC governments took a range of measures to confront the immediate healthcare aspects of the pandemic, while allocating substantial sums in stimulus packages ranging from around 2 per cent to 30 per cent of their GDP.
Loosening purse strings
Fiscal packages, a relaxation of monetary policy and a substantial injection of liquidity into the banking system provided bandwidth for a reflation of GCC equities and credit. In November last, GCC equity markets hit their highest level since February 2020.
Saudi Arabia and Dubai stock indices recorded the best monthly performance, with double-digit gains of 10.6 per cent each.
The pace at which GCC economies reopened their economies contributed to a renewed sense of optimism while projecting a stable outlook for the region in 2021. The speedy and effective roll out of vaccines means that travel and tourism are likely to bounce back, probably in the latter part of the year.
The tourist dollar return will serve as a welcome shot in the arm. From a macro-perspective, the UAE and Saudi Arabia are particularly resilient with solid foreign exchange reserves, large asset bases in sovereign wealth funds, and low debt levels compared to other emerging markets.
Financial buffers remain ample in Kuwait, Saudi Arabia and the UAE while Oman and Bahrain face lingering debt pressures. Economic growth in the UAE and Saudi Arabia is projected to expand at 1.3 per cent and 3.2 per cent, respectively, following a contraction estimated at 6 per cent and 3.7 per cent in 2020.
In the UAE, Expo 2021 will play a major role in the steady recovery of the country’s property and tourism sectors. The UAE’s new permanent residency programme and on-shore 100 per cent ownership rules makes it even more competitive.
In Saudi Arabia, the Vision Realization Programmes that underpin Vision 2030 are moving from design to implementation, creating jobs along the way, and restoring economic activity.
Mega build plans
GCC countries have planned almost $1 trillion of investment in mega-projects, as they look to transform economically and socially. As these projects become operational over the decade, they will help revitalize the local economies, creating significantly improved tourist attractions, entertainment venues, financial and health centers, and residential areas.
The geopolitical outlook also bodes well. Now that uncertainties such as Brexit, US election, and vaccine approval have been cleared, these bode well for global markets in general, and for the GCC in specific.
For GCC equities, investor expectations will now be more focused on the pace of business recovery for frontline stocks and sector leaders with solid balance-sheets in the first-half of this year.
GCC debt continues to be compelling. It benefits from technical support and is of better quality compared to other emerging markets.
Latch onto digital
The digital economy, which stood out as perhaps the only true beneficiary from 2020’s economic collapse, provides investors and entrepreneurs with bright prospects. The digital transformation in sectors such as retail, energy, manufacturing, healthcare, and entertainment will help in the growth of the region’s non-oil economy.
It is a transformation that was expedited by the pandemic in almost every sector and every nation. Companies are fast-tracking digital solutions for their businesses to meet increased consumer demands on digital channels.
- Vipul Kapur is Managing Director - Private Banking at Mashreq Bank.