UK boosts GCC ties as gobal crisis bites
Dubai, March 30, 2013
The UK economy is still struggling to recover from the effects of the global economic crisis in 2008-09. Nonetheless, its importance as a trade and investment partner of the GCC is growing, according to QNB Group.
The UK’s GDP declined by 6.3 per cent from April 2008 to June 2009.
Recovery has been sluggish and, four years on, the economy has still not regained the lost ground and is unlikely to do so before 2015. Two sectors which have been a drag on the UK’s recovery are financial services and hydrocarbons, said the QNB report..
Efforts to reduce the government’s deficit have also weighed on growth in the near termm, said the QNB report.
Firstly, financial services are a major component of the economy, representing around 10 per cent of total GDP, given the role of the City of London as a global financial hub.
Prior to the crisis, financial services had been expanding at around twice the rate of the overall economy. In its aftermath, however, the financial sector has been much weaker and constrained by a need to deleverage balance sheets.
Secondly, the UK’s oil and gas production has been in rapid decline as many of the North Sea fields mature. This decline is unrelated to the economic crisis, but its timing has made economic recover more difficult, the QNB report stated.
The UK was a net exporter of oil until 2005 (and of gas until 2004). However, oil production was just 0.9m barrels per day in 2012, half the level in 2005 and a third of the peak production achieved in 1999, it added.
QNB pointed out that the reserves/production ratio for oil was less than a decade, although new investment and exploration should help.
On the gas front, there are some prospects for onshore shale gas, bolstered recently by tax-allowances in the 2013 budget. The decline in UK gas production has prompted imports from Qatar, it said.
Thirdly, the UK government has implemented a painful austerity program since 2010 to try and bring the fiscal deficit under control. The government faces a difficult balancing act with its public debt. It needs to slow the rate of nominal increase by reducing the primary deficit but it also needs GDP growth, which is harmed by austerity, to reduce the size of the debt relative to the overall economy, said the QNB report.
Although the UK lost its cherished AAA credit rating, when it was downgraded by Moody’s downgraded in February 2013, this did not result in a notable increase in its borrowing costs as its rational was already priced into the market, the report added.-TradeArabia News Service