Leenart, in his keynote speech at the gala dinner of BAB, said that on the positive side, it may divert capital flows to this region and provide interesting investment opportunities for GCC companies.
He said he hoped and believe that in 2013, the relative strength in the US and China will give investors some confidence and should support Europe in making small steps of progress.
Secondly, he added, the real effect of the European banking crisis cannot be witnessed in full as it is mitigated by the cheap liquidity provided by the European CB and governments.
“As a result, the $2 trillion deleveraging process has only just started and will take many years. This will not be a dramatic event but more a slow burn, where capital will be tight so lending will be selective and priced to give adequate returns,” he said.
“Thirdly, while we think the crisis in Europe has a significant impact on the GCC, we don’t think the decline in cross-border lending is the biggest fall-out, as it can be absorbed by a global institutional investor base that is awash with liquidity. Investor’s want to get exposure to new markets such as the GCC, so to the extent we offer it in the right format and under the right conditions, appetite will be significant.”
Talking about the economic outlook for 2013, he started with the US, where the data he said was more good than bad, as improvements in housing, spending and credits are finally reinforcing each other somewhat (but admittedly propelled by a 7% fiscal deficit).
“Question is how the politicians deal with the fiscal cliff. The division between republicans and democrats may increase after it appears that moderates in both parties have lost out in this last election. But we think they will find a workable solution because cutting spending won’t be easy as almost all federal revenues are spent on mandatory programmes and interest, so growth is the only option.”
“I’d also like to touch on China, as its growth outlook has been much discussed this year. Our feeling is that China is stabilising around 7% growth helped by some hefty government spending. To give you an idea, China ran a 600bn RMB budget surplus in the first 9 months and is expecting to spend all of that and more in the last 3 months. Next year, we expect China to be a positive surprised after all the skepticism and gloom around its economic situation.”
“The situation in Europe in some ways is improving somewhat. Some very large problems remain but a few small improvements are occurring, notably the stabilisation of capital flows and credit spreads. As one of my colleagues described it, it’s now just “run-of-the-mill” bad instead of “look-out-for-that-bank or country-its-about-to-default” terrible. But we are in for a long period of very slow to no growth. At the end of 2013, Greece’s GDP will have contracted by 20% over the last 5 years. That sort of decline has only been witnessed in periods of war. Spanish growth is at its weakest since 1850, apart from during the Spanish Civil War. Dutch Q3 growth was 4.4% negative on an annualised basis, and consensus growth for 2013 in Germany is only 1%. But France stands out as the most troublesome, and may be the large obstacle to a broader European recovery. Europe has been a worker’s Utopia for many years. It’s now clear these economies cannot afford this level of spending, so some harsh adjustments to the way we live are ahead of Europe.”
Overall, 2013 looks like it may be a repeat of 2012 with many of the same trends affecting markets. Our hope and expectation is that US and Chinese growth should support Europe in making small steps of progress.