GCC’s rising reliance on emerging markets is a risk – S&P

By bne IntelliNews March 31, 2014

The oil-exporters GCC countries’ increasing trade and investment links with emerging Asian markets increase their economic reliance on global growth and exposure to foreign shocks, Standard & Poor's said in a new report. The ratings agency underscored that trade relations between the Gulf Cooperation Council (GCC) countries and Asia (excluding Japan) have risen sharply at the expense of Europe, the USA and Japan since 2005. This is due to emerging Asian countries' growing demand for hydrocarbon commodities, the GCC’s main export item. On the other hand, growing unconventional energy output and energy efficiency in developed markets are cutting their import needs, S&P noted.

The ratings agency underscored that GCC exports to the EU, the USA and Japan have fallen to less than 30% in 2012 from 51% in 1995. Meanwhile, Asia is currently the GCC's largest export destination, accounting for 57% of total foreign sales, S&P said.

But the situation is not that alarming as S&P noted that despite growing trade ties, the GCC states have been largely unaffected by the recent capital outflows and declining asset values that emerging markets have experienced since the US Federal Reserve signalled it would start tapering.  S&P underscored that GCC countries' fiscal and trade surpluses make them largely immune to foreign capital outflows.

The GCC states, however, will be vulnerable to a potential slowdown of growth in emerging markets, S&P added. A sharp slowdown in major emerging economies and a potential increase of capital outflows, would affect GCC countries mainly through falling oil market prices, according to S&P, noting that this is not its baseline scenario.

The ratings agency expects that GCC countries will introduce fiscal expansion to support their national economies in a scenario of falling oil prices. Bahrain, however, would be the most vulnerable GCC country in such a scenario as it is the only country already running a fiscal deficit. 

Related Articles

Ankara and Tehran join wave of anger directed at Trump’s recognition of Jerusalem as Israel’s capital

US President Donald Trump's December 6 announcement that his administration has decided to unilaterally recognise Jerusalem as Israel's capital was described as “against international law” by ... more

Islamic State is finished declares Iran's President Rouhani

Iranian President Hassan Rouhani on November 21 declared the end of the so-called Islamic State militant and terrorist group following decisive battles in Iraq and Syria. Stating that he wished to ... more

Turkey the loser as Baghdad rewards Iran with control of Kurdish oil exports

Iran is taking control of oil exports from Iraqi Kurdistan's giant Kirkuk field with Baghdad authorising the move as a reward for the Iranians' help in quelling the Kurds' late September push for ... more