MUSCAT — The oil-rich Gulf states, with deeper pockets than most, have long been recession-proof but economists in the Sultanate and elsewhere suggest they are no more immune to global economic downturn.

However, some financial analysts see Oman as an exception.

“The situation in Oman cannot be called “financial crisis” as it faces only a financial crunch driven largely due to outside impact,” says Chandrasekhr, group general manager of Jawad Sultan Group of Companies.

“The banking system here is fine and there is no cause of concern. In general while picture looks hazy yet there is no cause of alarm. If one were to look at the experience of other countries in the region, I strongly believe that Oman can pull it through”.

The global financial crisis and plunging oil prices have, however, ended a six-year boom in all AGCC economies, according to a report from Gulf Finance House, a leading Bahrain-based financial institution.

The Sultanate is not a member of Opec and, therefore, does not have to join in on the cartel’s swinging production cuts. It has also invested heavily in liquefied natural gas production, diversifying its revenue base.

GFH’s chief economist, Dr Ala’a Al Yousuf, confirms the AGCC states have joined the last group of countries to be affected by the global financial crisis.

“While the AGCC would be able to manage the challenges of lower oil prices, the region cannot stave off the effects of a protracted, global financial turmoil,” concludes Yousuf.

Simon Williams, HSBC’s regional chief economist, reposes confidence in Muscat’s resilience.

“I think Oman can weather the storm. But 2009 will feel like a recession compared to the past few years of growth.”

Its banking sector has also fared better than most. While access to credit is falling — which will hurt Omani companies and financial institutions — the Sultanate is experiencing a “credit squeeze rather than a credit crunch”, says Williams.

HSBC expects the Sultanate’s economy to grow 3 per cent in real terms in 2009, above the regional average. Standard Chartered has lowered its forecast for Oman’s growth in 2009 to 2 per cent from 2.5 per cent, but still said it would perform better than most of its neighbours.

Market analysts, however, fear that joblessness in the Gulf states, including Oman, will surge in 2009.

The Sultanate is relatively in a better position compared to the Western or south Asian economies as well as it peers in the region, says Sunil Dhall, VP of Gulf Baader Capital Markets.

“But, Oman definitely is part of the global economy and thus cannot remain insulated from the current global slowdown,” says Dhall, adding that despite the economic crunch, Oman will have the second highest growth rate in the AGCC after Qatar.

“The global financial crunch will put millions of expatriate workforce in the Gulf states in a wringer and individual preparedness is important to overcome the expected change in future life,” says Ramachandran Nair, manager - quality development, Gulf Agency Company (Oman) LLC.

“The slump in oil prices have prompted a freeze in a number of development and tourism projects across the Middle East, which worsens the employment sector in the region. In the current scenario, a lower oil price trend would deeply affect trade in all aspects, especially for those countries which greatly depend on trade and tourism as their primary revenue earning sectors,” says Nair.

“The Gulf states will suffer a surge in their unemployment rate comparable to that of the US and Europe this year,” says Steen Jakobsen, chief investment officer at Saxo Bank.

Job losses will be a ‘key driver’ for economies in 2009 and the AGCC is likely to experience a two-fold rise in its unemployment rate amid the current economic crisis, says Jakobsen, adding that unemployment will be a key driver of everything in 2009.

The IMF last week slashed its economic growth forecasts, predicting the severe financial crisis would reduce global growth to the slowest pace in six decades.

“World growth is projected to fall to 0.5pc in 2009, its lowest rate since World War II,” the IMF said in a sharp 1.75-point downward revision of November forecasts.

“The world economy is facing a deep recession” under continued financial stress, it warned.

“Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy,” says the 185-nation institution. According to government data, the US economy has fallen at its steepest pace in 26 years in its worst performance since 1982.

The economy shrunk at a 3.8pc pace in the fourth quarter of 2008, marking a sharp downward acceleration in economic activity. The world’s biggest economy has been in recession since December 2007, according to the National Bureau of Economic Research.

The US is losing 500,000 jobs a month. Citigroup and Bank of America have more or less disintegrated. JP Morgan’s health is failing fast. General Motors and Chrysler survive only on life-support from the US taxpayer. Brazil lost 650,000 in December. Beijing says 10m have lost their jobs since the financial crunch began. Japan’s exports fell 35pc last month, year-on-year.

It will be an extremely delicate task to steer the ship again. Two years of global financial and economic meltdown could leave over 50m more people unemployed by the end of 2009, risking social unrest, warns the International Labour Organisation.

New ILO estimates indicate that global unemployment in 2009 could increase over 2007 by a range of 18m to 30m workers, and more than 50m if the situation continues to deteriorate. That could raise the world’s jobless total to 198m, or 230m people in the worst-case scenario.

The Kuwaiti cabinet last week reviewed the economic rescue package aimed at protecting the emirate’s financial system from the fallout of the global economic downturn. Kuwaiti MPs urged the government to rescue the economy from imminent collapse.

As the global economy grapples with its worst financial disaster in decades, countries across the world are hoping that counter-cyclical spending will prevent or damp economic slowdowns.

Oman — while hardly as rich as many of its Gulf neighbours — has saved prudently in recent years, which will give it a robust budgetary cushion over the next few years.

However, the global economic downturn (recession), whether we admit or not, is a reality and it is here to stay, for months, if not years. World economies have no choice, but to face it in a bold manner, trying to avert its repercussions, including the by-product of large-scale joblessness, to a certain extent.

The extremely delicate task for the economies, including that of Oman, ahead would be to steer the ship again, in the right direction.



No cause for concern

THE global financial crisis, by its very dimension, has had a very far reaching effect on the entire world. Oman too has been impacted by the crisis in some measure despite its macro fundamentals remaining intact, said P. Chandrasekhr, GM of Jawad Sultan Group of Companies.

“One of the biggest worries of most of the bankers across the region is the exposure to real estate which mercifully has not blown into a large scale proportion here. However, the greater concern is general cautious tendency of the lenders since for most businesses credit is not becoming that easy,” he said.

“Lack of availability of competitive sources of funding in the banking system, has led to general tightening all over and the result, a firm squeeze on lending. This naturally makes credit dearer for the economy as well as the corporate sector. One must also not lose sight of the fact that many Corporates are tightening their belts to go for the long haul. However, it is difficult to comment on lay offs since, it is business-specific and depends more on the financial health of these businesses. In the ultimate analysis much will depend on the individual resilience of such businesses to withstand turbulence and stay competitive and also ensure returns to the shareholders amidst such trying times,” said Chandrasekhr.

“The falling oil prices, driven more by complex financial instruments than by real demand, did not help matters either. This is because the surplus generated by oil revenues so far, generally created that extra liquidity within the region and helped one and all. We are also seeing more and more AGCC nations taking recourse to drawing on their surplus funds, accumulated over the years to meet the deficit.

“The situation in Oman cannot be called “financial crisis” as it faces only a financial crunch driven largely due to outside impact,” said Chandrasekhr, adding that “what is indeed commendable is that the banking system here is fine and there is no cause of concern”.

“In general, while the scenario looks hazy, yet no cause for alarm. If one were to look at the experience of other countries in the region, I strongly believe that Oman can pull it through,” he concluded.



Oman relatively better positioned

THE Sultanate is relatively in a better position compared to the Western or south Asian economies as well as its peers in the region, said Sunil Dhall, VP of Gulf Baader Capital Markets.

“But Oman definitely is part of the global economy and thus cannot remain insulated from the current global slowdown,” said Dhall, adding that despite the economic crunch, Oman will have the second highest growth rate in the AGCC after Qatar.

“This is due to the fact that the economy is better managed, we did not have a huge real estate bubble and oil production will be higher in 2009.

“A lot of private sector companies will evaluate their manpower needs according to the prevailing scenario and some workforce adjustments cannot be ruled out. Corporates will have to be in a lean shape and on top of the situation to survive as to what is expected to be a very challenging year in recent memory”.

Firms that are able to reinvent themselves and maintain their market positions and profitability will emerge stronger and prosper in the long run once the crisis is over, said Dhall.