A new report by Standard & Poor’s has found that Gulf Cooperation Council (GCC) countries enjoy an expanding investment and trade relations with emerging markets in Asia. However, analysts explain that this would make Gulf states more dependants on the global economic growth. In addition, they warn that this could also make GCC countries more vulnerable to the economic shock in other countries.
This warning tendency was revealed in S&P’s report which has the straight-forward title “Gulf States Are Increasingly Vulnerable To An Emerging Market Slowdown.” The research has discovered that the links between Gulf countries and Asian markets have strengthened to an impressive extent. However, that has also weakened the relations between the GCC states and the U.S., Japan, as well as many markets across Europe. According to Standard & Poor’s this trend has started about nine years ago.
The reason for Gulf countries popularity among Asian market is the region’s hydrocarbon products. In addition, the demand for such commodities is also reported to continue to increase.
Moreover, Asia has become the biggest export destination for the GCC. Nearly 60% of all foreign sales go to countries from this region. Meanwhile, exports from Gulf states to Japan, the U.S. and Europe has dropped under 30%. In comparison, in 1995, more than 50% of all exported GCC commodities went to these three destinations.
However, the Gulf’s close relations with Asia and limited connections with other markets did not have a negative effect on the region. GCC countries seem to have escaped the trend of falling asset values and capital outflows, which many emerging markets already witnessed. From S&P’s explain that this is probably due to the Gulf’s trade and fiscal surpluses. Thanks to them, the countries in the area remain unaffected by foreign capital outflows.
Despite that, GCC states are exposed to another potential economic threat. The report has found that countries in the region would be very vulnerable to any future slowdowns on emerging markets. If the capital outflows increases in these areas and the slowdown jumps, the Gulf would almost certainly witness declining prices on the oil market.
Standard & Poor’s warns that Bahrain would suffer the most. That was due to the fact that the country is currently seeing a fiscal deficit. Nevertheless, economists are positive that a fiscal expansion would help GCC countries in case oil prices drop.
