Dubai: As the pandemic stifles economic activity, experts kept warning of a much harsher recession in the Gulf. Sadly, the dreary outlook hasn’t changed even as economies begin to reopen post-lockdowns.
“For the Gulf Cooperation Council, the recovery would neither be V-shaped nor U-shaped, but likely to be L-shaped with growth permanently shifting to a lower level,” said Ziad Daoud, Chief Emerging Markets Economist at Bloomberg.
An L-shaped recovery is a type of recovery characterized by a slow rate of recovery, with persistent unemployment and stagnant economic growth. L-shaped recoveries occur after an economic recession.
Lockdown will prove costly
Lockdowns and social distancing measures were beginning to ease across the Middle East given tentative signs that the worst of the pandemic had passed for most of the countries in the region, analysts said, with a flattening in the curve of new COVID-19 cases now seen on the horizon.
“Restrictions battered growth in April and relaxation (in containment measures) would improve activity in the short term, but the longer-term costs are still tallying up,” Daoud said.
Daoud added that the mounting costs including “permanent impairment to some sectors such airlines and hospitality, an exodus of emigrant workers may spread the slump to the rest of the economy as well as austerity measures that would amplify the downturn”.
The GCC has evidently not been immune to the economic crises enveloping the globe. It has been facing the double shock of plunging oil prices and the coronavirus pandemic.
Earlier this week, the Institute of International Finance (IIF) said the GCC is facing its worst economic crisis in history.
Looking ahead, plunging oil prices, due to oversupply amid sinking demand, will prove to be a brutal double whammy for countries that have traditionally relied on oil revenues to support state budgets.
Real gross domestic product (GDP) in the Gulf is expected to contract 4.4 per cent this year, the IIF revealed earlier this week, adding that it saw this “despite some indications that the virus spread has been successfully contained and the easing of some restrictions in recent weeks”.
The global financial industry body further added that cuts in public spending to contain the widening of their deficits “could more than offset losses stemming from reduced oil exports.”
Saudi deficit to widen
The Saudi central bank said this week it would inject an additional $13.3 billion into the local banking system to help banks support the private sector.
In 2015, during the last economic downturn, Saudi Arabia put into effect austerity measures, which included a cut in subsidies that resulted in higher utility costs for Saudi nationals.
Shortly thereafter, in 2016, certain allowances, bonuses and financial benefits for civil servants and military personnel were cancelled and suspended. Yet, in 2017, these allowances were reinstated.