Layan Damanhouri
KUWAIT — The GCC economies will face challenges in the oil market, says Anton Brender, chief economic officer at Candriam Investors Group, who presented an analysis report on the global economy at the Economic and Investment Outlook for 2016 conference recently held in Kuwait.
Brender stated that each country is facing certain challenges since the global financial crisis in 2008, indicating that the GCC countries will encounter difficulties in redefining their growth strategies as oil prices are low.
The annual conference, organized by the Kuwait Investment Company in cooperation with Candriam Investors Group, gathered businessmen, major CEOs, economic analysts, and journalists to discuss economic prospects and investment opportunities for the upcoming year.
Equity fund manager from Kuwait Investment Co. Khalid Alduhaiem said: “It is imperative to organize this annual event in cooperation with Candriam Investors Group to provide an overview of economic opportunities for investors.”
Brender further presented two scenarios in which the oil price stands at $55 or goes down to $35, indicating that the oil production rate will in either case significantly decrease in 2016.
“Increase in oil production and falling of oil prices aimed to push the US out of the oil production market has proved difficult,” he said. “With the price at $55, the US Shell oil production falls very slowly. If the oil price would go up to $75, the Shell oil price will move up very quickly. If the oil price goes down to $35, then Shell oil production is going to be depressed in the US and that will make some room for the OPEC countries to put more oil in the market.”
In addition, he said, “The increase in production has been absorbed by a huge increase in inventories which will weigh in the market in the years to come.”
Due to the huge excess of supply in inventories during the last years, “the key problem is to adjust the level of inventories in the near term”.
Saudi Arabia has very high break-even prices as opposed to Kuwait, UAE, and Qatar. In addition to slowdown in growth in the upcoming years in Saudi Arabia, fiscal deficits will remain for a while.
“It’s a challenge for the GCC economies as it is for other emerging countries to redefine their growth strategies relying less on oil income,” said Brender. He added that it is in OPEC as well as Saudi Arabia’s interest to increase the oil price.
On emerging countries since the global financial crisis, Brender said, “There was an excess in borrowing in the developed world before the crisis. It has been replaced by an excess of borrowing in the emerging part of the world after the crisis”.
The world is currently witnessing an adjustment of the pace of borrowing in most emerging countries in order to support growth and avoid unsustainability, especially in China where the excess borrowing has been the biggest, he said.
With the exception of India, most emerging countries have been going heavily into debt, he added. China, in particular, is faced with the challenge of rebounding its economy.
Since a large number of trading partners depreciated against the US dollar simultaneously this year, there has been weak depreciation in most emerging countries.
Interest rates will stay low in the global economy and rates of growth will be underperforming compared to the past years, he said.
Florence Pisani, economist at Candriam, said the US economy will continue to witness growth in 2016, adding that investment is increasing steadily yet the power of the US dollar will restrain the rate of growth. However, that will not affect the consumer power of the US market, which will witness a 2.4 percent increase in GDP in the upcoming year.
As for the Eurozone, the economy will be driven by consumption, which will consequently generate improvement in the labor market. The Eurozone is expected to witness a 1.9 percent increase in GDP by 2016.
