GCC Economy

Impact of Oil Price Volatility on GCC economies, markets and businesses

Closely intertwined with economic growth, oil has been vulnerable to global growth outlook. The recent collapse in oil prices caused by demand destruction on account of COVID -19 was exacerbated by the OPEC+ disagreement, pushing prices down to historically low levels. In the current dynamic scenario, where the world is controlled by COVID-19, while news on OPEC+ agreement, stimulus etc. causes some increase in prices, news on extension of lockdowns and filling up of oil storage causes a steep fall...

GCC Governments should tap the idea of perpetual bonds

Spain proposed an interesting financing mechanism, though not unprecedented, to fund the recovery measures against COVID-19 pandemic impact by issuing bonds without maturity date. The bond, popularly known as ‘perpetual’, has no set date for redemption and the government pays coupon until it decides to buy the bond back. The idea resonated well among many as it could offer and easy and low-cost way to finance the proposed amount of EUR 1 trillion (USD 1.08 trillion). Based on various estimates,...

COVID-19’s direct and indirect impact on GCC banking sector

The Current economic crisis due to the COVID-19 pandemic is likely to impact many sectors, none more so than Banking. The Banking sector will be directly impacted by lower profitability, increased non-performing loans (NPLs), deterioration in capital adequacy, etc. and also indirectly impacted by the effect of the various lockdowns and restrictions on the other sectors to which GCC banks are exposed which would impact their operations and profitability in the long run. Direct Impact due to COVID-19 The operations...

GCC fiscal deficits and financing post COVID-19

The economic repercussions of the impact of novel Coronavirus and the subsequent breakdown of OPEC+ supply cut agreement is unprecedented for the gulf economies. The sudden freeze in economic activity due to various measures such as travel restrictions (curbs on flights, public transportations and taxis), closing of schools, universities, shopping malls, commercials establishments, and curfew imposition to prevent the spread of virus has created a demand shock. Transportation sector that accounts for approx. 50 percent of global oil demand by...

In the COVID-19 crisis, who are the few global winners amidst plenty of losers?

The COVID-19 outbreak in China and its spread to almost all countries of the world has profoundly affected the global economy and businesses. Many sectors of the economy have come to a complete halt and others are operating at greatly reduced capacity. This has been reflected in the stock markets around the world which have fallen hugely in a short span of time. Amidst this sea of gloom, there have been certain companies who have emerged unscathed and may be...

COVID-19: High Impact Sectors

As the COVID-19 pandemic continues to cast its shadow far and wide, businesses across sectors are likely to be negatively impacted. This has also reflected in equities, as stocks across sectors have taken a hit. Exhibit: GCC Indices and their YTD (in %) Source: Refinitiv; Note: Data as of 25th Mar 2020. Cyclicals includes Hospitality, Tourism; Basic Materials includes Construction; Industrials includes Aviation, Logistics. While initial concerns were of a spill over effect from China, the virus’ spread across regions,...

GCC policy interventions to mitigate the economic impact of COVID-19

The Coronavirus has spread across the GCC countries, besides its immediate impact on the public health and the well-being of the residents and citizens, the outbreak will likely have significant economic consequences across the region. As the key economic activities in the region’s critical non-oil sectors like tourism, transportation is curtailed, we can expect a greater macroeconomic implication. In response to the crisis, the gulf region has introduced number of new economic measures to mitigate the impact of the coronavirus...

Parallels between COVID-19 and global financial crisis

Markets worldwide have experienced unprecedented volatility in the wake of the coronavirus outbreak. Though the mortality rates of those affected is much lower than that of Severe Acute Respiratory Syndrome (SARS) or the Middle East Respiratory Syndrome (MERS), Coronavirus disease – 2019 (COVID-19) being highly contagious has spread to over 190 countries and resulted in over thirty thousand deaths, majorly in Italy, Spain and China . Considering the severity of the outbreak, the World Health Organization (WHO) has declared it...

The oil price war – Saudi Arabia and Russia adding more fuel to the fire

At a time when economies worldwide have been put under stress and are contemplating the negative impact of COVID-19, the last thing they would have wanted was a price war between two of the world’s largest oil producers. Coming into the year 2020, the overarching theme was a dip in global oil demand that would need strict supply restrictions to balance the Oil markets. However, with Russia’s non-cooperative stance and Saudi Arabia’s subsequent retaliation, oil prices have tumbled down to...

Visualizing a post Covid-19 World: What to expect?

Consumer behavior will change in terms of tourism, investment, e-commerce etc; Public health care spending will improve drastically even post covid-19; Maturity of government leadership and bureaucracy will deepen; Massive fiscal stimulus can trigger stagflation; Capex by oil producers will see a significant decline impacting future oil prices; Low oil price will slow down electric vehicle penetration especially in emerging economies; Currency volatility will peak; World will prepare to depend less on China for supply chain support; Climate control will...