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Sat 22 Feb 2020 01:46 PM

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Middle East credit fundamentals were stable in 2019, says UBS

A UBS report found that while the local real estate market will likely ease in 2020, the construction sector is unlikely to see any significant rebound

Middle East credit fundamentals were stable in 2019, says UBS

Michael Bolliger, the head of asset allocation emerging markets at UBS, said that “the countries in the Gulf Cooperation Council (GCC) currently benefit from low US interest rates, and we see a very low likelihood of exchange rate pegs coming under pressure.”


The credit fundamentals of the sovereigns of the MENA region remained “fairly stable in 2019”, despite risks posed by trade tensions, the Eurozone slowdown and a challenging energy market, according to a new report from the UBS Chief Investment Office report on emerging markets.

The report noted that a number of issues have “served as impediments and remain major risks”, particularly for oil-driven economies in the region.

However, the report said that inflation has fallen lower and enabled central banks in the region to cut interest rates to support credit growth. Government fiscal metrics have remained stable on aggregate as a result of fiscal management and healthy GDP growth.

The outbreak of the coronavirus has had a limited direct impact on GCC economies so far, but it still might impact these countries indirectly because of its wider impact on global growth, energy and basic material prices, as well as consumer spending.

“We believe the downside is contained, but acknowledge the risk that the virus might spread further and faster, with a more significant impact on the global economy,” a statement from UBS said. “In this case, the spill-over effects on the UAE will be larger too, and the risk for more infections locally would also rise.”

Michael Bolliger, the head of asset allocation emerging markets at UBS, said that “the countries in the Gulf Cooperation Council (GCC) currently benefit from low US interest rates, and we see a very low likelihood of exchange rate pegs coming under pressure.”

“But volatile oil prices, which have a strong impact on public finances, and geopolitical risks will continue to pose challenges for the region in the coming years. The need for reforms remains high, in our view,” he added.

According to Ali Janoudi, UBS’ head of wealth management Middle East and Africa, is still “on a slow recovery path” from the oil shocks of 2014 to 2017, with significant fiscal barriers remaining in place.

“Headwinds will persist this year and next due to lingering trade tensions, the global economic slowdown, low energy prices, OPEC-led production cuts and regional tensions,” Janoudi said.

“We expect ongoing pressure on the local real estate market to ease in 2020, but the construction sector is unlikely to see a significant rebound this year,” he added. “Growth should, however, pick up somewhat thanks to the ongoing fiscal stimulus measures, spending related to hosting Dubai Expo 2020, rate cuts in line with the Federal Reserve, and continuing diversification efforts.”

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