Malik: GCC Economies Can Deal With Fed Tightening

Malik: GCC Economies Can Deal With Fed Tightening

• 00:00Can the Gulf and those six rate hikes. I get that they can handle three to four but six. Sure. Sounds like a lot.
• 00:09I do believe that the Gulf can we've seen a strong rebound in economic activity and of course with oil at current levels.
• 00:18That's all to a very comfortable factor. We do expect to see some of that oil wealth sort of start trickling more into the
• 00:26economy which will also boost economic activity. Ultimately we see the terminal rate from the Fed ending around 2.5 percent
• 00:36which is the same as it was before we saw the Covid Fed cut. So we we expect it to come back to more normalized levels. We
• 00:45actually feel that the Fed should have started raising rates earlier. And you know on the ground we are seeing still a very
• 00:55favorable backdrop for the economic activity. And that's that's due to multiple factors whether it's the
• 01:03opening of the economy whether it's some pickup in investment. So yeah we believe that it will be able to absorb it.
• 01:12Are you not concerned though that with central banks in the Gulf having to follow suit with that many moves that liquidity could
• 01:19start to tighten up quite rapidly. And what could the central bank perhaps do outside of the bounds of the peg to kind of
• 01:26address that. What kind of flexibility in the limited flexibility that they have. Do they have.
• 01:32There is some flexibility firstly GCC central banks a number of them did not cut to the same degree and we've seen that in past
• 01:42cycles that you know perhaps the first rate hike is not followed. They'll probably go back to more traditional
• 01:50differentials with the Fed fund target rate. So that's number one flexibility. The number two flexibility is is the borrowing
• 01:58requirement of the governments. And where we actually saw greater tightness was when you saw lower oil prices. So the
• 02:08government's borrowing requirement increased and that increased pleaded reducing deposits from the banking sector and increasing
• 02:16borrowing. And we've seen the opposite this time. Governments borrowing requirements have fallen significantly. Most GCC
• 02:25countries are expected to see as a fiscal surplus this year. And therefore we actually see liquidity conditions remaining
• 02:32comfortable. And the governments are in a strong position to boost liquidity if required.
• 02:39Yeah. What's your take on the current oil prices. Brent and WTI. It seems becoming more of a binary trade is days kind of go on
• 02:48because the one society got potential breakthrough with Iran. Then you've got things potentially escalating another notch
• 02:55between sort of Russia and the Ukraine and sort of geopolitical risks. And then you have the whole actual supply shortages.
• 03:01Where does that leave you. And you're thinking. Well I mean there's there's a lot of uncertainty in the oil market. And you
• 03:09know at the current time they're really reflecting both the geopolitical uncertainties between Russia and Ukraine and the
• 03:18physical tightness in the market. It's the combination together. I think you know we need to see a meaningful de-escalation for
• 03:25prices to come down at this point. But I do believe that the oil market hasn't fully priced in an Iranian agreement being made.
• 03:36So I think you know that that's another point of downside risk downside volatility if that actually occurs. What will be
• 03:44critical is how quickly if an agreement is is made how quickly can Iranian crude come back into the market. And given that
• 03:52inflation risks we could see a different you know difference than in 2015 2016. So a quicker return of Iranian crude
• 04:01potentially. But also we do expect U.S. supplies to start increasing. So I think there's a huge
• 04:10amount of uncertainty. And at the moment I think the geopolitical tensions are the one that's dominating the market.
• 04:20OK. And then at the same time I look at a market that is flourishing and that is sort of Dubai. We are at levels we
• 04:26haven't seen since 2018 for stock markets. Property has been on the up. Although there are questions how sustainable that is
• 04:34through 2023. What would you say is the Achilles heel of the Dubai economy at the moment given that it's made so much
• 04:40progress in a relatively short amount of time. Well I mean we see strong momentum continuing in Dubai and in
• 04:50the UAE. We expect to see no further recovery in in in key sectors related to terrorism related to aviation. We've sort saw
• 05:02a strong rebound last year of course. But you know the low low case numbers the openness the high vaccination rates are all
• 05:11support factors. And despite the higher interest rates we see demand for property is continuing. Prices are still competitive
• 05:19on a on a global basis. The structural reforms we're seeing the visa reforms is adding to demand. So I think you know as long as
• 05:28the global economy continues to expand. UAE and Dubai is very externally facing. So if there is an external shock that will
• 05:36come in. But I think if we assume that you know there's no major event global growth continues to expand to Dubai in a strong
• 05:45position.