HSBC's Williams: Geopolitical Uncertainty Brings Hesitancy

Summary

The video script discusses the economic diversification efforts in the Gulf Cooperation Council (GCC) region, particularly focusing on the UAE and Saudi Arabia. Despite the uneven progress, there is a generational change and a shift towards a fundamentally different economic landscape with increased potential growth rates. The speaker remains constructive about the region's growth, highlighting strong employment, demographic growth, and investment as key drivers. Capital spending is expected to play a significant role in the upcoming years. The quality of growth is deemed strong, especially in the non-oil sectors of the two largest economies in the region. Demographic advantages and capital market developments are also noted, with the region becoming a key member of emerging market indices. However, concerns are raised about maintaining growth momentum, geopolitical headwinds, and the impact of a strong dollar on export competitiveness. The speaker also touches on Saudi Arabia's balancing act in its relations with China and the US, and the potential long-term impact of geopolitical events like the Israel-Hamas conflict on the region's economies.

Takeaways

• 📈 Economic diversification efforts in the Gulf region are showing mixed results, with some areas experiencing substantial changes and growth.
• 🏙️ The UAE and Saudi Arabia are leading the way in economic transformation, lifting potential growth rates and setting a new economic landscape.
• 🔄 There are signs of a potential slowdown in momentum as oil prices recover post-COVID, but the overall outlook remains constructive.
• 💹 The Gulf region is expected to maintain a growth rate of around 4-4.5%, which is double the pace of global growth, driven by consumption, employment, and demographic growth.
• 💰 Investment is seen as a key driver for growth in the region in the current year and beyond, with access to funds and confidence to finance large capital spending programs.
• 🌐 The region's growth is well-balanced with low inflation, strong fiscal positions, and robust currencies due to the dollar peg.
• 🤔 The quality of growth is dependent on how it is judged, but non-oil growth is a significant factor, especially in the region's two largest economies.
• 📊 Capital markets in the region are strengthening, with equity market development and IPO programs contributing to progress.
• 🌟 The region's demographic profile is a key strength, with a young, growing, and wealth-creating population that is open to expatriate workers.
• 🚀 Capital markets are a work in progress, but there has been substantial growth, and the region has become an important part of emerging market indices.
• 🌍 Geopolitical factors, strong dollar environments, and interest rates are concerns that could impact growth, but the region's strong fiscal position provides some insulation.

Q & A

What is the current state of diversification efforts in the Gulf region from oil to non-oil sectors?

The diversification efforts are uneven, with substantial changes and generational shifts in countries like the UAE and Saudi Arabia, fundamentally changing their economic landscapes and lifting potential growth rates.

How has the economic cycle in the Gulf region been different compared to previous cycles?

The current cycle is different due to the momentum in diversification and the less marked movement in some areas, with signs of pick-up as oil prices recovered post-COVID.

What is the general growth rate across the Gulf region, and how does it compare to global growth?

The normal growth rate across the Gulf region is around four to four and a half percent on a weighted average basis, which is double the pace of global growth.

What factors are driving the growth in the Gulf region?

Growth is broadly driven by consumption growth due to strong employment numbers and demographic growth, as well as investment, which is a big driver for the year and in 2025.

How is the quality of growth in the Gulf region, especially considering the investments made by countries?

The quality of growth is strong, particularly in the two biggest economies in the region, which are driven by non-oil growth. It is increasingly supported by capital spending and broader structural reform programs.

What demographic changes are occurring in the Gulf region, and how do they contribute to the economic growth?

The Gulf region has a strong demographic profile with wealth and openness to inflows of new people and expatriate workers, bringing skills and capital, which contributes to domestic demographic expansion and economic growth.

Are capital markets in the Gulf region strengthening, and how do they support the economic growth?

Capital markets are a work in progress, with equity market development gaining pace and the region becoming a key member of emerging market indices, providing access to global markets for funding.

What are the main concerns regarding the region's growth and economic stability?

Concerns include maintaining momentum as growth becomes harder to generate, geopolitical headwinds, uncertainty affecting spending choices, strong dollar environments, and higher interest rates due to the Gulf's monetary affairs being tied to the dollar.

How does Saudi Arabia navigate its relations with other countries, such as China and the US, to maintain good relations with both?

Saudi Arabia focuses on looking after its own interests and asserts a clear national identity in its political and economic decisions, positioning itself to be part of both China and the US's political and economic landscapes.

Is the Israel-Hamas conflict impacting growth rates in the region, and what are the potential long-term effects on regional economies?

While the conflict has some impact on growth outlook and spending choices due to increased geopolitical uncertainties, the region's strong balance sheet and commitment to long-term development plans have helped maintain stability and sentiment.

How does the appreciation of the dollar affect the Gulf region's ability to export non-oil goods and services?

The appreciation of the dollar, which drives Gulf currencies higher, makes it easier for the region to export non-oil goods and services on a price basis, potentially boosting trade.

What is the general sentiment towards the economic outlook in the Gulf region, considering the various geopolitical and economic factors?

Despite uncertainties, the sentiment has held together with capital markets performing well since the initial shock of geopolitical events. Consumer sentiment and currency values remain good, and there is a strong commitment to long-term development plans among governments and policymakers.