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Cautious optimism for 2013

Many governments must walk a line between austerity and public discord

Image Credit: Dwynn Ronald V. Trazo/©Gulf News
Gulf News

Dubai: In an increasingly uncertain world, a New Year is a mixed bag — comes with both hopes and worries.

However, considering the financial mess of 2008-2011, the year 2013 appears to have more hopes and less concerns. ‘Cautious optimism’ is perhaps the best way to describe the outlook.

Many would agree that the worst for the global economy is, more or less, over. However, risks remain. Global leaders — both political and financial, as well as corporate bosses — will have to continue to walk a tightrope, maintaining a delicate balance. The road is less slippery, but there could be hidden shocks. Careful steps could make a difference.

“In the US, housing, PMI (Purchasing Managers’ Index) and lending data also looks better, although the recent survey by University of Michigan on consumer sentiment was considerably weaker than expected,” said Marc McFarland, Chief Investment Officer of Emirates NBD bank.

If Europe stabilises following a series of cash injections and the US government works out a formula to reduce debt burden, things appear much better this year compared to the years behind us. Whatever the outcome of the fiscal cliff — it is no doomsday.

“There are still constraints on growth — access to funding is still constrained, the real estate market looks fragile and the global economic outlook is poor, particularly for the West,” said Simon Williams, Chief Economist, HSBC Middle East.

However, slower growth in the economies of the world’s growth powerhouses — India, China and the emerging markets — remains a concern as the world enters in 2013. India has seen its growth at the lowest in a decade while China no longer talks about a double-digit growth as a new leadership emerges from the shadows of the old to take over the administration of the world’s second biggest economy.

The good news is, that the corporate sectors in North America and Europe have steadfastly cleaned up their balance sheets over the last four years and debt at the corporate level is low, even by historical standards, McFarland says.

“There is the opportunity to step in to lend to corporates in place of existing banks that are now reducing the size of their balance sheets,” he says. “Aside from bond issuance, this can come in the form of private pools of capital (hedge funds / private banks / dedicated funds etc.) lending directly to corporates in place of banks.”

In the Middle East, economies are growing. Even for those affected by the Arab Spring, things are looking up nearly two years after the storm, with the exception of Syria, which is in the middle of a civil war.

Libya, Tunisia and Yemen appears to be settling down and looking for investment, while Egytian government is trying to work out a deal with its electorate and the International Monetary Fund on a large sums of loan.

However, in the home turf, the UAE enters the New Year on a stronger footing.

“The UAE economy enters 2013 in better shape than at any point since 2008, and with momentum that I’m optimistic will carry it through the year,” Williams said. “[The year] 2012 has been a year of strong recovery for the UAE as a whole and Dubai in particular. Unrest elsewhere in the Middle East may have accelerated the turnaround, but the underlying driver is the vibrancy and competitiveness of the economy’s export orientated service sector and the depth of its hydrocarbon wealth.”

Riding high on continued economic growth the UAE businesses could bank on a stronger growth rate this year, as investment is returning, even in the real estate sector where new cash flow is fuelling demand so much so that some are cautioning against the return of “property madness”.

Recently, Dubai Government has approved a number of mega projects — Mohammed Bin Rashid City, Deira Souq and Canal, the Entertainment Hub and Expo 2020 village — subject to the emirate’s bid win, are some of the new projects that will continue to drive growth in the construction, building materials and logistics sectors.

Property developers Emaar, Nakheel, Dubai Properties and even Damac have begun launching new projects and awarding construction contracts — a scene that reminds people of the 2006-07 property boom period.

Marc McFarland says, “For investors who can take GCC or single country risk, growth in the UAE shows further signs of strengthening and should be rewarded with higher asset prices. Newspapers are now talking about ‘madness’ in the local property market and the need for renters to be protected. The UAE is back!”

In addition to these, continued expansion of the infrastructure works and the growing operations of the UAE’s five airlines will continue to drive economic growth of the country. So, we all have reasons to be confident and comfortable.

However, the downside of it are — traffic jams, higher rents and inflationary pressure. Since growth is what we all want — so be it.