Standard Chartered: Regional Institutions Will Be Immune

Dubai A potential exit of Greece from the European common currency and the subsequent bond defaults could trigger a global contagion. But the impact on the UAE and the oil-exporting Gulf countries will be limited, Standard Chartered economists said yesterday.

“We do not see the events in Europe causing any systemic problems for regional financial systems as most of the regional institutions have relatively low or no exposure to European asset classes,” Philippe Dauba Pantanacce, senior economist for Mena, Standard Chartered, said.

However, economists warned that a global economic slowdown could have some impact on the region in terms of reduced trade flows and lower oil export earnings.

“We expect the impact to be limited because of the strong external balances of the oil exporting countries in the region and their increasing trade ties with Asia,” Sarah Hewin, regional head of research for UK and Europe, Standard Chartered, said.

Economists said the impact of a global contagion will be different for the oil importing and oil exporting countries in the region. The Arab Spring and the prolonged political transition in the oil importing countries have impacted inbound investments and the performance of sectors such as trade and tourism. A long recession in Europe could negatively impact these economies in terms of lower investment flows and deteriorating external balances.

In contrast, oil exporting countries in the Gulf are expected to report robust nominal economic growth this year. “High oil GDP combined with qualitative and quantitative improvement in the non-oil GDP is expected to help Gulf countries withstand external pressures like the potential new crisis in Europe,” Pantanacce said.

For 2012 the International Monetary Fund (IMF) has projected real GDP growth of the GCC to average almost 5 per cent compared to 8 per cent in 2011.

Economists believe the GDP growth in the Gulf countries will further moderate this year as oil production peaked last year and oil prices are likely to soften on decline in demand from both Western markets and leading Asian emerging markets.

In the UAE, tight liquidity in the banking sector is expected to limit the loan growth. “In 2011, loan growth in the country has been flat. We do not expect any drastic change in the situation as the overall loans to deposit ratios are close to 100 per cent,” Pantanacce said.

Tight liquidity in the banking system combined with the absence of Eur-opean banks from the loan market could restrict credit to the private sector. However, the Standard Chartered economists said there are other sources of liquidity in the UAE and other GCC countries.