The GCC forecast stands in sharp contrast to the International Monetary Fund’s (IMF) assessment of the global economy, which recently predicted that 2023 will be the weakest year for global economic growth since 2009, at 2.7%, down 0.9% in the first half of 2022 – not counting the bottom of the Covid-19 pandemic, says First Abu Dhabi Bank (FAB), one of the UAE’s largest banks and one of the largest and safest financial institutions in the world, in its 2023 Global report Investment Outlook”: “The start of a new cycle”.
The difference is even clearer when compared to Western economies, where the IMF forecasts real GDP growth of just 1.0% for the US and just 0.5% for the eurozone this year.
Egypt grows by 4.7 percent
Meanwhile, Egypt’s economy is forecast to grow by 4.7% in fiscal 2022/2023, down from FAB’s earlier estimate of 5.7%.
In financial markets, investment trends could continue from 2022 into the first quarter of 2023, but the report predicts markets should recover by the summer.
Analysts at FAB expect US interest rates, which currently stand at 4.33% and have been the main driver of investor risk aversion, to plateau later this year with a likely recessionary exit in the first half .
Rapidly rising interest rates have made traditional assets such as bonds and stocks look less attractive to investors than interest rates on cash deposits, but once the projected US recession materializes, this should serve as a cue to invest in risky assets, particularly likely stock prices hitting the bottom pretty soon once it arrives.
recovery of profits
Alain Marckus, MD and Head of Asset Management, FAB Private Banking Group, said: “While as investors we can never be sure of what is to come, the negative story of 2022 is likely much closer to its end now and we are very close the end of a difficult bear market for stocks and bonds. By mid-year at the latest, forward-thinking investors will be running their slide rule over the likely stellar earnings recovery expected in 2024.
“Equities markets tend to look about 9 to 16 months ahead. Smart investors also know that unpredictable “X” factors can and do spoil things at times. So it’s too late to sell as investors are unlikely to get back in until the ‘V’ shaped market rally begins. Those with cash should seek to use it in the months immediately following.”
FAB’s outlook notes that the GCC region continues to be supported by strong oil revenues for its hydrocarbon exporters, which is helping to create a buffer for regional activity outside of the oil and gas sector and has helped bring government balance sheets back into surplus bring to.
Economic diversification
However, the non-hydrocarbon economic diversification that is so important to the GCC’s economic development will be key to shielding member economies from the downwind of the likely global recessionary headwinds this year.
Encouraging sectors include growth in inbound tourism, with some GCC countries reporting higher tourist numbers for 2022 than before the pandemic. Industrial production has also continued to expand in much of the region, including Saudi Arabia and Egypt.
Although the report reflects a resilient economy, the region has not been immune to global pressures. Inflation averaged 5-6% across much of the GCC in 2022, reaching levels not seen in more than a decade but about half those of many Western countries. FAB forecasts that GCC inflation will moderate to around 3% in 2023.
The picture for Egypt is more complex as it is impacted by high food and energy prices and another recent depreciation of the Egyptian pound, and inflation will continue to weigh on the country’s economic outlook in 2023. pegged currencies, are likely to peak in May or June in line with further monetary tightening by the US Federal Reserve.
Market trends shape future growth
In addition to key economic indicators, the FAB Global Investment Outlook considers a number of trends shaping future growth prospects, including a focus on specific industries.
Sectors included in the report include:
• Crude Oil and CO2 Trading
• Developments in Mena and Egypt
• Prospects for emerging markets
• Outlook for developed markets
• real estate
• ESG (Environment, Social and Governance)
New opportunities
Emerging opportunities include a projected increase in sustainability-related investments. It notes that the “green” bond market recently hit the $2 trillion milestone and “sustainable” bonds – including social, sustainable, sustainability-linked and transition bonds – had a total value of 3.5 at the end of the year trillions of US dollars in the third quarter of last year, according to a Climate Bonds Initiative report sponsored by FAB and presented at COP27.
The GIO report also points to a growing influence of carbon trading in Mena’s financial landscape, building on the launch of pioneering trading platforms in the GCC and Mena regions in 2022. This included the United Arab Emirates, where a partnership between Abu Dhabi Global Markets (ADGM) and AirCarbon Exchange (ACX) have created the world’s first fully regulated carbon trading exchange.
ADGM also became the first jurisdiction to license carbon credits and offsets as environmental instruments, a class of financial instruments, and regulated exchanges and clearinghouses that operate both spot and derivatives markets.
Other regional initiatives include the launch of the Saudi Arabia-based regional voluntary carbon market and the Egyptian government’s launch of the first African voluntary carbon market during the COP27 climate summit in November.
Source: TradeArabia
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