It ain't over yet

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Dr Eckart Woertz was right about the credit crunch and the price of gold. Now one of the Gulf’s most influential economists is predicting a ‘nasty surprise’ for the global economy in 2010.

Dr Eckart Woertz, one of the Gulf’s leading economists, leans forwards as he says it. “I guess this is the problem with economists. They tell their bosses what they want to hear.”

I’ve just asked him why so many of them seem to be saying the global recession will be over by the beginning of next year. “Everybody wants things to get better. But you don’t turn to a priest to tell you the church is wrong. He would not be the right person to ask for a critical assessment of his institution.

“Today the economy is somehow a religion to society, everything turns around it. In the Middle Ages the scholars debated how many angels could find space on the head of a pin. Today there is debate on whether the economy picks up in the first or second quarter.” He’s laughing now.

Woertz, who is the Economics Programme Manager at think tank Gulf Research Centre (GRC), does not have a track record of telling people what they want to hear. Almost three years ago, as the Western world was unknowingly enjoying the last months of a near three-decade-long economic boom Woertz confidently predicted to me that it wouldn’t be long before banks “started collapsing.”

At the time, I thought he was being absurd. Currently on sabbatical, lecturing at Princeton University on Gulf economies and food security, it is clear he was being anything but absurd. His track record on gold is also worth considering. In 2005, Woertz published a report entitled ‘The Role of Gold in the Unified GCC Currency’ which strongly advised central banks to buy the precious metal.

At the time, gold was trading at around $400 an ounce. Today, it is worth some $1,050 an ounce.

Last time we spoke, about eight months ago, he told me that, financially at least, “it was the end of the world as we know it.” But today, many economists say we are about to turn the corner and that things will be back to normal in 2010. Is he convinced?

He smiles. “I am a bit hesitant. 80 percent of economists believe the global recession is over and there are some green shoots. Sure, we have some stabilisation going on, but the problem is this is mainly attributable to government spending and stimulus. But what happens when that stimulus peters out? Because the job market looks awful. So the spending cannot come from private households under such conditions. Companies are still laying people off, and so on.

“I could imagine that, for the real economy, we are in for a nasty surprise in 2010. We could see several consecutive bottoms, rather than some kind of miraculous recovery. Where is demand supposed to come from? And inventories are high, anyway. For example, I just spoke to the representative of a global car brand in Dubai, they have huge inventories, and they don’t see demand picking up. Even if it did, the inventories would satisfy demand for the time being. It really would take a very strong impetus for the factories to start saying ‘ok, let’s hire some people.’ I am a bit hesitant about these green shoots.”

Woertz says he believes that debate about whether or not the recession will be over by the summer of 2010 is fatuous, to put it mildly. It is his opinion that this is a crisis that will take a decade or so to work through and will unravel the whole fabric of global imbalances that emerged over the last three decades. He is not even sure that the trillions of dollars of state money injected into the economic systems of countries is money well spent.

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READERS' COMMENTS

To Ali Akbar...with whom I semi agree
Posted by Simon, Dubai, Dubai on Sunday 15 November 2009 at 15:47 UAE time


Ali...From your words and tone you are an optomistic individual and a good patriot of the UAE (even though Iranian). I like the leaders of the UAE also...forthright and strong but they have NEVER been in this position before and neither have they lived through an economic crisis for which they have little 'independant' influence.

Unfortunately the outside world will economically influence and effect the return of the UAE's fortunes. Some business leaders in Dubai are ignoring the real issues and pretending in the Media that everything is behind us. Its clearly not.

Your wise words to be optomistic and also to recognise and advise that people in the UAE need to save for the future and spend less until the crisis is over are wise words indeed...BUT...and this is a big BUT...if we all save, as we should do, who is going to buy the goods in Dubai/UAE? who are going to fill the Malls of Dubai/UAE? If we cut our spending further then the shops/malls and businesses will definately close down just as in the USA.

Dubai is a consumer economy and if we don't consume then the Dubai/UAE economy will falter. That is a fact. Can we rely on the international visitor to support the UAE economy? I don't think so because the world crisis is NOT getting better. Its getting worse...slowly getting worse...but getting worse all the same.

Dr Woertz is correct in his economic assessment. It may not be the best of reading but its factual and very relevant. Take away the stimulus packages and vey few countries can stand on their own two feet...especially the USA!

I firmly believe the worst is yet to come...but like you i am trying to save and have cut back my spending. That doesn't help Dubai/UAE but it does protect me from a worsening economy...until there is some sort of turn-a-round.

long live u a e
Posted by ali akbar, lar, Iran on Monday 2 November 2009 at 16:00 UAE time


united Arab emirates will come out of downturn they have great leaders with best experience in the world, u a e came from scratch,started with nothing look now what they have best of the world in any aspect,enshalla with great leadership of their Highness god will help them to come back to best of the best,i will promise they will do they best and get back on truck. so be optimistic and have pension,invest reduce risk bring down the cost of living for some times, god is with u a e .... i lived all my life in Dubai i have seen ups and downs. once i lived in tent when i was 7 years old now i am 50 i have 3 houses in different location in u a e ...last word from your brother in Iran live as time gos by live with cost of time don't buy what you don't need if you need consultation call me on 00989171815225 for free (long live U A E

interesting
Posted by His Excellency Dr Paul, Dubai, UAE on Monday 2 November 2009 at 10:35 UAE time


Interesting to read the views of Dr Woertz. In these days of real estate and political leaders desperately talking things up, it is refreshing to hear the contrary view - one which I tend to agree with fully (I too bought into gold 2-3 years back and am still holding).

I think people should sit up and listen considering this gentleman's track record.

Predicting the oil price is rather difficult - last year when it was 140 bucks I said to a friend I felt fair value was around 70-80 bucks. Of course it looked silly when it fell to 35 bucks and I have no idea whether it will hit 100 or 25 first in the short term. Longer term, the oil price will depend heavily on new supply like Brazil's (which I am told by an oilman I met in Brazil are 'huge') but also on attempts to move away from dependence on oil. Oil at 70 bucks will still drive biofuel and electric vehicles for economic reasons, but even if oil is cheaper, the move to reduce CO2 emissions may effectively legislate for electric vehicles in Europe and the US. They would be forced to crack that technology and commercialize it to the point where oil demand could really take a big hit. And that is aside from the political desire for energy independence in north america.

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