HSBC says Gulf well equipped to weather US Fed tapering

Gulf states would weather any US Fed tapering better than most emerging markets, HSBC says.

Arabian Gulf states will weather any Fed tapering better than most emerging markets, HSBC says

The Gulf states will be the best insulated in emerging markets if the US federal reserve bank reduces the amount of cheap money it makes available because the region's flow of revenue from oil, finance and tourism continues to make it cash rich, according to Simon Williams, the region's chief economist at HSBC.

"I put the Gulf against the more fashionable emerging markets of Asia and Latam, and in the Gulf I see an economic cycle which is relatively new, leverage levels which are relatively low, asset prices that are reasonably well judged," Mr Williams said in an interview with The National yesterday.

“I also see a region which was not dependent on QE [quantitative easing], which wasn’t lifted by access to free money from the West on the way up. When tapering starts to kick in I think we will be much more resilient than other emerging markets because we run surpluses, not deficits. That positions us well to outperform in the near term.”

Mr Williams said the UAE economy stands out in the Gulf because as well as strong public financing from oil revenues, it also boasts a vibrant non-oil sector. The concern here is not so much the country’s ability to grow, but rather its management of that growth to avoid any quick boom and bust cycles, he said.

“What we will be looking for over the next year is evidence that policymakers have learnt lessons from the previous economic cycles and will be taking necessary steps to make sure that we don’t have a repeat of the boom and bust 2003 to 2008,” Mr. Williams said.

“While you have to be aware of where those risks are you shouldn’t let them obscure the enormous potential of the economic activity.”