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Rich Pickings

Regional Head of Research at Standard Chartered Bank, Marios Maratheftis discusses the eurozone, Greece and a common currency for the GCC.

July 16, 2012 4:16 by

Are these ripples going to hit the GCC region?

It has hit the GCC; oil prices are lower, so that’s the direct impact on the GCC. Prices are lower, but still they are high, so we are still very com­fortable in the GCC. Governments can still fund themselves and run surpluses, even with lower oil prices, so there is an impact but not a concerning one.

We are seeing some European banks reducing exposure in emerging markets to heal the ones back at home. The GCC on net basis is an exporter of capital not an importer of capital. The GCC is not dependent on capital inflow, because, on a net basis, they export more than they import, in terms of cash and capital.

But petrol and crude prices might fall even more?

You know what, even if it is, it’s not about falling, it’s about how long they will stay where they are, so oil prices fall to $70/$80 dollars per barrel, the GCC can still run a balanced budget, which is incredible. We are in a tough envi­ronment and you can have the GCC increasing government spending and still having balanced budgets with oil prices at $80.

I don’t think there is anything wrong with even running budget deficits in this environment. This is a time for def­icit, so even if oil prices go to $50/$60, they can still have a higher spending for sometime without a big problem.

The question is not how much they drop, but how long they stay low. In 2008 we saw oil prices go to 30 levels, they didn’t stay there too long, so it was not a concern.

So what about Asia? If Asia also starts to slow down?

Asia is slowing down, I mean we were anticipating the slowdown since last year. Our story last year was that Chi­na was going to have a slow Q1, and it was going to have a slower Q2. We are exactly in that space, but our view was that this would trigger a change in policy from China from policy targeting infla­tion and lowering inflation and reducing their pressure on the housing market, policy would shift to what’s focusing to what’s growth, this is what we are see­ing in China and we think that this will begin to impact the economy in Q3 and Q4, so we will expect China’s growth to average around eight percent this year, which is low by Chinese standards, but still pretty respectable. So the message from Asia is that there is a slow down, but there is still positive growth, so on a relative basis Asia is outperforming. In­dia is slightly more concerning, it’s a form of policy paralysis, some political complications are affecting economic policy. There is a prospect of India be­ing downgraded, which is not encourag­ing for foreign inflows into the country. So these are the concerns we would have on India in the short run; the one positive for India is oil prices. Lower oil prices are incredible news for India both on the inflation front, but also on the current account deficit front. So there is a slowdown in Asia, but Asia is not broken. There is a recession in Europe, and Eu­rope is badly broken. There’s a big differ­ence in the two. 

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