x Abu Dhabi, UAEFriday 28 July 2017

Call for G20 leaders to avert new recession

DIFC chief economist says a common platform on financial regulation is a priority

Finance ministers and regulators of the G20 who are meeting in South Korea today should make a more concerted effort to avert the risk of a "double dip" recession, Middle East economists say. The ministers and central bankers from the Group of 20 leading and emerging economies meet at a crucial time for economic prospects, with the euro-zone crisis and worries about the Chinese recovery darkening the outlook.

"We need the G20 to emerge as a proper decision-making body at this meeting," Dr Nasser Saidi, the chief economist of the Dubai International Financial Centre, said yesterday. Simon Williams, the chief economist of HSBC Bank Middle East, echoed the call: "The region will be looking to the G20 to provide leadership and encouragement. There is a lot of nervousness around the region about the global economy.

"The G20 has to take the measures necessary to ensure ongoing economic recovery. The worries are that the euro-zone problems, a possible slowdown in China and large levels of US debt will slow that recovery." Global economic output is expected to grow by 4.5 per cent this year after contracting slightly last year, the latest predictions by the IMF show. Mr Williams said there was increased anxiety in the region, mainly as a result of oil price volatility in recent weeks.

"Seventy dollars a barrel is the comfort level," he said. "That means there are no deficits in the region and it would be impressive to keep it there after the worst recession for a couple of generations." Crude prices were near US$74 yesterday. Dr Saidi said the priorities for G20 officials in the Korean city of Busan were to agree to a common platform on financial regulation, to limit the threat of contagion from the Greek crisis, and to head off the threat of double-dip recession, especially in Europe.

"There could be a knock-on effect for the oil price if there is a decline in world trade," he said. "What's happening in China will largely determine the oil price. The US recovery is anaemic and timid, while in Europe there is a risk governments will reduce spending to tackle their own debt problems." GCC countries are represented at the G20 summit by Saudi Arabia, the region's biggest economy, but Dr Saidi called for greater GCC consultation before G20 meetings.

"The UAE is the second-biggest economy in the GCC region," he said. "The GCC needs to develop its own voice and a common position in advance of the G20 [meetings]." On regulatory reform, Dr Saidi said Americans and Europeans were adopting different positions, but neither had taken into account the views of the emerging markets. "We have seen increasing volatility in financial markets in recent weeks, pushing it back to near the levels around the time Lehman Brothers collapsed," he said. "This has had a detrimental effect on the Middle East market for sukuk and for IPOs."

The world's leading finance ministers yesterday showed signs of having a common agenda. "Countries with high budget deficits need to make sure they can deal with those deficits," said George Osborne, the British chancellor of the exchequer. "Surplus countries also need to play their part contributing to global growth." Timothy Geithner, the US Treasury secretary, said: "We want fiscal reforms to happen in a way that's growth-friendly."

But there were no public statements by late yesterday from China, which some in the West accuse of protectionism through its allegedly under-valued currency, the yuan. Chinese growth helped pull the global economy through the recessionary effects of the financial crisis of 2008, but recently there have been fears that the domestic economy, especially the property market, is set for a "bubble" deflation.

Pranab Mukherjee, the Indian minister of finance, said the European debt issue was the most serious problem facing the G20. "If it affects the recovery of Europe as a whole, then it will affect the world recovery," Mr Mukherjee said. fkane@thenational.ae