Arabian Gulf economies are well placed to weather the fallout from an American financial crisis if US authorities yet again face the same impasse that threatened global financial markets this week, a leading analyst says.
“Gulf balance sheets are by far the strongest in the emerging world. Most countries run healthy fiscal and current account surpluses, while at the same time debt is low,” said Jason Tuvey, an economist at London-based Capital Economics.
“What’s more, policymakers have ample resources available to soak up any economic spillover from a US default.
“Gulf countries have built up substantial amounts of wealth in their sovereign wealth funds [SWF] over the past decade or so.
“SWF assets are equivalent to over 200 per cent of GDP in Kuwait and the UAE.”
However, Mr Tuvey said Gulf economies could be affected in three ways if a repeat of the United States crisis occurred.
“First, the value of SWF assets is vulnerable to the wider market fallout. A large amount of US Treasury bonds are held by SWFs, the value of which could fall in the event of a fallout,” he said.
Second, loose monetary conditions in the US, to which many Gulf economies are tied via links to the dollar, could lead to an increased rate of credit growth in the region, possibly exacerbating fears of an asset bubble, especially in property markets, Mr Tuvey said.
Third, a period of economic recession that could follow a US default would be likely to affect oil prices, on which regional budgets are based.
“The upshot is that it would require a substantial US default and serious market dislocation for there to be a major adverse economic impact on the Gulf economies,” he said. “And even then, they are probably the best placed in the emerging world to withstand the fallout.”
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