The EU’s economic woes felt in the Middle East
EU crisis affecting trade flow between Europe and the Gulf region.
May 17, 2010 11:13 by Rasha Reslan
The European Union is struggling with what some argue is the region’s worst economic crisis since the World War II.
But how is the EU’s crisis affecting the trade flow with the Middle East?
“If there is an economic recession in the EU its not good for Israel because we have a lot of trade with the European Union, which in fact has been growing,” Professor Michael Beenstock an Israeli economist at the Hebrew University in Jerusalem told The Media Line.
According to data from the EU, Israeli exports to the European Union are valued at $14 billion, making the EU Israel’s second most important export market.
But Beenstock said the robust Israeli economy would survive the storm.
“I don’t think the effects of the European recession will be very great,” he said. “The Israeli economy is amazingly versatile and if you look at the effect of the recent world recession on Israel… we got out lightly. Israeli exporters and also the Israeli economy in general are very flexible and if markets are weak in one part of the world, the businesses switch to another part of the world.”
The EU crises has led to the euro falling to its lowest level against the shekel in seven years, and a four year low against the US dollar.
“Because of the currency turbulence, the euro is under threat, the dollar is very weak and the British pound is very weak,” Beenstock said. “In fact if you look at all the major currencies they are all in trouble and want has been happening is that people have been noticing that the Israeli economy is an island of stability in a sea which is very unstable and the demand to hold shekels have been increasing.”
“So the shekel has become very very strong,” he said. “It’s become strong after the sub-prime crisis and it’s becoming even stronger now with the euro crisis. So this is good news and bad news for the Israeli economy.”
“Its good news for people living in Israel because the purchasing power of the shekel is very strong,” Beenstock said. “But it makes life really difficult for the exporters.”
The crisis is also having an effect on the trade flow between the EU and the Gulf region, where $86 billion in goods was exported from the EU to Gulf states last year, with $40 billion exported from the Gulf states to Europe.
Jean Marc Paufique, head of the business information website Zawya’s Professional Investment Division, told The Media Line that the weakening of the euro is not necessary a bad thing for the six member states of the Gulf Cooperation Council.
“The stronger dollar that the Gulf Cooperation Council countries’ currencies are pegged to will help make the imports coming from the EU to be cheaper,” Paufique said. “So it’s good for the import industry as it will not push inflation so prices will be low.”
“So far this year the [stock] markets of the GCC, apart from Dubai have been performing better than the European markets,” he added. “There has been positive growth in Saudi Arabia, Bahrain and Qatar.”