x Abu Dhabi, UAESaturday 22 July 2017

Economic fire spotter calls off Dubai alarm

But Chinese bubble has top Saxo Bank analyst concerned

David Karsbol, the chief economist with Saxo Bank in Copenhagen, is a fan of bold predictions. Mr Karsbol saw the global downturn coming before most, and in particular was among the first to forecast the meltdown of Iceland. His annual "Black Swan" list of events that are unlikely, but not as unlikely as you might think, this year included possibilities that the price of sugar would drop by a third (already happened), the US Social Security Trust Fund would go bust (on the way), and the angry American public would form a third party (does the Tea Party count?).

So when Mr Karsbol stops in the region, his opinion merits a listen. But those who are bullish on global equities should hope his crystal ball is cracking up. Over lunch in Dubai, he said: "This is not a V-shaped recovery. I'm afraid that [global equities] are 20 per cent, perhaps 30 per cent, overpriced ? It looks a lot like 2007 again." Mr Karsbol said the surge in stock prices in recent months was based largely on government stimulus spending and not a "real economy."

He was even worried about China's near-term prospects. "I think they have a massive, massive bubble in China" that will burst either late this year or early next, he said. It would have a particularly big impact on global commodity prices. "Not only have they been buying all the stuff, they've been stockpiling it." Mr Karsbol was in the region to meet staff at Saxo's Dubai office. He confessed he is not an expert in the Gulf economies, but recalled studying Dubai's growth as early as 2007 and thinking "it looked like another Iceland".

Now that the Dubai Government has announced details of its proposal to restructure the debt of Dubai World and Nakheel, he said he was "not afraid Dubai will be another Greece or Iceland", however. He said that however Dubai World's debt restructuring was eventually settled, the results were unlikely to shake world markets the way regional events did last year. breagan@thenational.ae