After all the "green-shoot" signals my business brain was expecting continued upward and forward movement.
Pause on economic escalator brings uncertainty
I don't like those motion-activated escalators. You step on, but there is a split second before the machine starts to work, and you wonder briefly if it has broken down and you'll have to get the legs working for the trudge upstairs. It's usually only a fraction of a second before the sensors activate, the machinery kicks in, and you resume your effortless ascent, but I always find it disconcerting.
I've had a similar feeling for the past week about the financial and economic scene in the UAE, and especially Dubai. After all the "green-shoot" signals - stock markets soaring, oil above $70, property prices "bottoming out", financial liquidity returning, world economic environment stabilising - my business brain was expecting continued upward and forward movement in the UAE. Now, just fleetingly, it has come over all confused and uncertain.
The signals have changed quite suddenly and subtly. Stock markets have had an incredible three-month period, adding more than 30 per cent to value in decent volumes and amid signs of resurgent foreign interest in the region. Then last week it all came off the boil. After such a boom period, it might seem ungrateful to highlight a relatively small drop, and investors are, of course, right to book some profits. But the market's negative reaction to various negative news events - such as the confusion over Emaar's deal in Saudi Arabia - was unsettling, and could be taken as a sign of fragility ahead of the long summer break.
Then there is property, the dynamo of the UAE economy. After a couple of comparatively bullish bank reports last month - from HSBC and Standard Chartered - the analysts seem to have had second thoughts. Deutsche Bank and UBS weighed in with rather more bearish forecasts, seeing further falls of up to 20 per cent in Dubai. A Reuters "poll of polls" of banking analysts seemed to confirm the new pessimism on property.
The jury really is out on this one. Much depends on the extent of the reported "exodus" of expatriates over the summer, as well as supply side factors such as the ability of developers to deliver in the face of such trying market conditions. My own view is that we will not get a clear prognosis on Dubai and UAE property until September, and anybody who tells you anything definite in the meantime is a hostage to fortune.
The financial and banking position is equally opaque. Liquidity certainly has freed up all round the system, with loans and mortgages flowing again, even if under more stringent conditions for borrowers. It is inevitable that there will be an increase in non-performing loans (NPLs) in the second half of the year, but again the extent of it depends greatly on the "exodus" factor. Even if there is a statistically significant rise in NPLs - say to 2.5 per cent of total loan books - it is comfortably within the resources of the country's well-capitalised banks.
I think reports of banks "hiding" the extent of NPL write-offs are premature. If we reckon the onset of the financial crisis in the UAE as around about "Lehman Day" last September, it is still too early for the NPL losses to show through in the figures. It will be the third quarter before we really see the damage. Another banking-related factor added to my "escalator moment", however. The problems of Al Gosaibi and Saad in Saudi Arabia are unsettling for the UAE, where such family groups perform a significant role in everyday commercial life. Traditionally cautious and conservative, these firms are not likely to have plunged into the kind of esoteric financial engineering that got the Saudis intot trouble. Nonetheless, the trouble in Al Khobar and Bahrain will be unsettling for family businesses in other parts of the Gulf, including the UAE. There may also be direct banking sector exposure to the Saudis, as in the case of Dubai's Mashreq.
But the most unsettling factor came in the shape of fresh doubts about the global situation. At the Paris Air Show, the British Airways chief executive, Willie Walsh, said his company had planned last September for a two-year recession, and nothing had happened to make him change his mind. In the Financial Times, the influential economics guru Martin Wolf said the global economy of 2009 was tracking the Depression-ravaged 1930s with uncanny accuracy. "The race to full recovery is likely to be long, hard and uncertain," he concluded.
Local economists agree we should be wary of calling too early an end to recession in the UAE. Rob McKinnon of Dubai's Al Mal Capital says: "Markets here have got ahead of the fundamentals. The 'green shoots' have been overstated." Other experts are beginning to talk about a "bear market bubble" - a temporary period of apparent recovery within a long-term recession. In the Great Depression, there were many occasions when markets seemed to rally for quite extended periods. But it was not until 1954 that equity prices got back to pre-1929 levels.
Maybe my fears are exaggerated, and the smooth path to recovery will be resumed. But I think it will be a while longer before we can tell whether the economic escalator has kicked back into automatic mode. firstname.lastname@example.org