By Tim Fox
Initial impact will be felt largely through the financial markets, with uncertainty about Trump’s unpredictability the main concern
As with the rest of the world, the Middle East is slowly coming to terms with the reality that the 45th US President will be Donald Trump.
What that reality is likely to be, however, is still very unclear and for this region, there are additional causes for concern.
Over the course of the election campaign, Donald Trump has made a variety of disparaging comments about the countries of the Middle East which will ring alarm bells about what might be in store.
The initial impact will be felt largely through the prism of financial markets, with uncertainty about Trump’s unpredictability the main concern driving down markets.
The likelihood of the US Federal Reserve hiking interest rates at next month’s FOMC meeting would clearly diminish if this continues, which would probably be only a temporary reprieve for GCC markets which have seen their own interest rates gradually rising over the last few months.
However, while such a delay might allow a little more time for regional governments to come to the market with bond issues, such an effect will probably be more than outweighed by rising market volatility.
Oil prices are also reflecting some of this uncertainty, which raises the stakes about what OPEC will do at the end of the month to arrest or reverse this decline. Ultimately the fundamentals of demand and supply will drive the oil price going forward into 2017, and these still argue for gradual rises in price, but the possibility of this trend being interrupted by periods of volatility should not be underestimated.
Also, looking through the near term noise around the Fed, a delay to a rate hike in December, combined with a weaker dollar, and the likelihood of more fiscal stimulus spending enacted by a Republican Congress could actually argue for stronger growth and sharper rate increases when they actually start.
The dollar is also still at risk in the short term as expectations for a December Fed tightening are likely to oscillate, and the threat of more protectionist trade policies will not help it much either. Trump has promised to renegotiate key trade deals at a time when global trade flows are already very weak.
However, for regional currencies that are pegged to the dollar this could end up being something of a blessing by reducing one of the key headwinds to growth, but only so long as the volatility associated with it is not too severe.
The other concerns will be about Trump’s attitude to the region’s political issues, where he has been largely non-committal and vague, probably reflecting a low level of priority to the region overall. In the absence of having a political track record, Trump is likely to fall back on his business experience and seek to channel this to the benefit of regional relationships and ties.
However, more direct business consequences for the region will probably reflect any new protectionist tone coming out of Washington, which could have impacts on those sectors with significant exposure to the US such as in airlines.
However, one of the hallmarks of Trumps comments about the Middle East has also been his relative inconsistency, as if he does not want to be tied down to comments he made before the election. Unpredictability is, of course, one of the main sources of concern, but it also offers the possibility of some unexpected outcomes that might even surprise favourably.
On the other hand, and probably more likely, a ‘US first’ approach to regional issues may also manifest itself in US disengagement from the Middle East. In which case the region’s governments may look to build stronger economic and financial ties with other global powers.
One exception to Trumps’ inconsistency is in relation to Iraq and Syria, where he has made strongly worded remarks about the conflict there and about destroying Daesh (ISIL). What this will amount to in practice is unclear, however, as by the time he takes office in January the situation there could already look very different.
Another issue about which Trump has been relatively consistent has been in his criticism of the Iran nuclear deal. While this approach may actually provide the basis for a degree of convergence with some regional players that were already suspicious of the deal, he might not want to jeopardise the US’ growing business links with the country by tearing up the deal as he promised.
Saudi Arabia, on the other hand, may take some reassurance from wider Republican successes, given its long standing ties to the party, and especially with the Obama administration ending on the relatively sour note of JASTA.
However, Trump himself is an unknown quantity which may at the end of the day still encourage investments and capital to be gradually re-allocated from the United States potentially to the benefit of other financial centres in London, Europe and Dubai.
Tim Fox is chief economist & head of research at Emirates NBD
Since ages we have learnt all politicians speak two languages,
one during campaign, and one, after campaign.
So forget about what both candidates have said, this has gone down the drain, at least for Mr Trump, now he will switch to
the second language.
We need to wait and see what he really has in mind.
No need to waste energy on baseless speculation that, nowadays, media is very fond of.