MENAFN - Kuwait News Agency (KUNA)
Global economy poised to recover next year - GIC report
(MENAFN - Kuwait News Agency (KUNA)) Though the global economy continues to suffer from the sluggish performance of the US and EU economies and their underpinnings of mushrooming debt and political deadlock over rescue and austerity plans, there are signs that economic growth of emerging economies (EM) will pick up momentum in 2013, according to a report issued by the Gulf Investment Corporation (GIC) here on Friday.
Emerging (EM) economies attempt to safeguard themselves through expansive fiscal and monetary policies but contagion from the EU has caused trade growth in China to slow down to nine percent, from 24 percent last year.
There are signs that economic growth of EM economies will pick up momentum in 2013. In addition to the Philippines which achieved an overall economic growth of 7.1 percent, Turkey, Indonesia and Mexico were high achievers during 2012, while retaining a positive future outlook. Asia-Pacific grew faster than other EM regions, at 6.5 percent quarter-over-quarter (q-o-q) during Q3 2012.
Prospectively, China is expected to achieve overall growth of about 8.5 percent in 2013. Evidence of revival include the PMI, which rose to 50.2 for China in October, and crossed the 50 mark in the US at 51.7, according to the GIC report.
Most Latin American countries have been resilient to global stresses. The projected acceleration is strong for Brazil, from 1.5 percent in 2012 to 4.0 percent in 2013, because of targeted fiscal measures aimed at boosting domestic demand in the near-term and monetary policy easing, including policy rate cuts equivalent to 500 bps since August 2011.
Alongside the EU debt crisis and the US policy deadlock, geopolitical events in the MENA region influenced Oil prices, causing it to trend upwards, and gearing it to remain high for the reminder of the year.
With the Fed's quantitative easing in force, the USD continues to depreciate against other currencies, adding to upward pressures on oil prices.
In addition to Oil prices, other downside risks to global growth include the fiscal cliff in the US, with USD 600 billion of spending cuts and tax increases, posing a near-term risk that could slash 1.25 percent of the US GDP growth and possibly trigger a recession.
Dealing with the Gulf Cooperation Council (GCC) economy, the report said the prolonged credit boom prior to the 2008 global financial crisis is estimated to have burdened global commercial banks with defaults and delinquencies worth USD 660 billion during 2010-11.
After the crisis, credit expansion has made tangible steps in the path of recovery cross the globe, with the EM and GCC economies continuing to record robust growth in credit activity.
The GCC countries have been recording rapid growth in healthcare spending. During 2007-10, the GCC members have recorded a growth of 13.3 percent in healthcare spending.
Saudi Arabia remains at the lead with healthcare spending of USD 19bn in 2010, followed by the UAE where spending has risen from USD 5.6 billion in 2007 to 11bn in 2010.
Although healthcare spending and investments in these countries have witnessed robust growth in absolute terms, they remain low as a proportion of GDP.
Though Bahrain spends the lowest in value terms amongst the GCC countries, its healthcare spending at 4.7 percent of GDP is almost at par with China. At 2.6 percent of GDP in 2009, Qatar spends the lowest amongst its GCC peers.
In 2010, the ratio of government to private funding for healthcare was almost 75:25 as an average for the GCC, with the Saudi at the lower end of 63 percent and Oman and Kuwait at the higher end of 80 percent.
This presents significant challenges on public finances if healthcare spending were to be improved to global standards.
The GCC equity markets carried its lackluster sentiment through the month, failing to be enthused by the bounce in Oil prices from a recent low. The Standard and Poor's GCC index shed -1.72 percent for the month, under-performing both the MSCI World and EM indices, which netted gains of 1.43 percent and 1.69 percent respectively.
The Saudi bourse remained under pressure during most of the month as investors speculated on the health of the Saudi King. Though the month ended on a positive note following a statement from the Crown Prince and a public appearance from the King himself, the bourse remained the least performing amongst its peers, with a decline of -3.80 percent for the month.
The Real-Estate and Insurance sectors were the least-performing during the month, while the frontline Banking and Petrochemical sectors fared only marginally better.
Kuwait's KWSE (Weighted) index emerged the best-performing during the month, adding a net 4.18 percent, driven by expectations of political stability following the elections.
The Consumer Services and Telecom sectors were the best-performing, while the Financial Services remained under pressure, and the Banks and Real Estate sectors managed modest gains.
In the UAE, Dubai's DFM and Abu Dhabi's ADSM indices closed with slightly different outcomes, as the ADSM index managed a marginal gain of 0.08 percent, helped by a late resurgence in the Banking sector.
However, the large-cap Banking and Real Estate sectors were net losers for the month. Meanwhile, the DFM index closed with a net loss of -0.72 percent, as the key Real Estate and Services sectors notched up losses for the month.
Oman's MSM 30 index declined -2.23 percent as losses were registered across the board, with the Banking sector emerging as the least-performing for the month.
Qatar's QE index shed -1.71 percent for the month, as the Services and Banking sectors were under pressure, with the Banking sector remaining the least-performing sector in Qatar this year.
Meanwhile in Bahrain, the BSE index succumbed to losses in the Services and Industries sectors and edged down by -0.86 percent for the month, despite some traction in the Banking sector.
The BSE index continues to be the worst-performing sector in the GCC this year, with YTD losses of -8.30 percent.
In November, the GCC markets remained disconnected from developments in global markets, failing to react to a recovery in major equity indices and a rally in Oil prices. The markets have suffered from a lack in direction and dearth of catalysts since the announcement of unimpressive Q3 results.
Looking ahead, continued economic recovery in China and support for Oil prices, could give some fillip to the key Petrochemicals sector in Saudi Arabia. Elsewhere, positive political developments in Kuwait could lend a sense of stability to the KWSE index, while sustained momentum in the Dubai economy could continue to drive the Real Estate sector.
In December, investors are likely to position themselves in anticipation of FY 2012 earnings announcements and dividend payouts in early-2013, the report added.
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