Coronavirus economic shutdown in GCC will lead to structural changes: Experts

An illustration, created at the Centers for Disease Control and Prevention (CDC), depicts the 2019 Novel Coronavirus. (File photo: Reuters)

The economic shutdown put in place by authorities to control the coronavirus pandemic will lead to dramatic and structural changes by the time measures are lifted, experts said.

GCC economies have come to a virtual standstill as lockdowns and social distancing measures put in place to combat the spread of the coronavirus, officially known as COVID-19, take their toll. How long the lockdowns will last is currently being debated, with the economic fallout worsening as time goes on.

“The GCC is not dependent on the global economy, but before any recovery will happen there will be a structural change. Struggling business will actually vanish … and the behavior of the consumer will have changed,” said Mazen al-Sudairi, the head of research at Al-Rajhi Capital.

Not necessarily all struggling businesses will vanish, al-Sudairi explained, with some systemically important sectors in the GCC likely to receive government support to weather the coronavirus economic storm.

“Not all of those businesses struggling will actually disappear; governments won’t allow them to fail. Airlines, for example. Each airline in the GCC I’m sure will be protected, especially the national airlines,” he said.

Global interest rates are also likely to stay low for a long time, al-Sudairi added. This will have long-standing implications for investors as some assets which are normally attractive with high interest rates become less attractive.

“There will be more cash and investments in equities in the future. The traditional breakdown of assets might change … Lower interest rates mean bonds will be less attractive, equities will be and real estate too,” al-Sudairi added.

In Saudi Arabia, the nonoil sector will likely contract, according to James Reeve, group chief economist of Riyadh-based Samba Financial Group.

“There should be some offset from finance [which will benefit from a wave of government debt issuance] and government services, but the nonoil economy is set to contract by 2.1 percent in our view,” Reeve said.

However, Reeve suggested the nonoil sector will rebound the following year, predicting a firm rebound of 4.1 percent in 2021.

Overall, economic growth is much harder to estimate, he added, due to the uncertainty over oil prices amid rampant market oversupply and plunging demand as a result of the coronavirus pandemic.

Read more:

Coronavirus could provoke deepest economic recession ‘of our lifetimes’: WTO

Coronavirus: Bahrain to spend $570 mln on salaries for 100,000 employees

OECD economies see biggest monthly slump ever amid coronavirus pandemic

SHOW MORE
Last Update: Wednesday, 08 April 2020 KSA 18:14 - GMT 15:14
Top