GCC economies are perusing investments in the right direction, addressing infrastructure needs and investing in sectors that will create more opportunities in the long run, a report said.

Economic dynamics in Mena region are increasingly diverging between the GCC countries and the rest of the region, added the quarterly Global Focus Economic Report issued by Standard Chartered.

In the wider Mena region, the fundamental challenges are a lack of resources to introduce the necessary measures to reduce social and economic pressures, and ongoing political transitions, the report noted.

The GCC on the other hand enjoys strong social and geopolitical stability and a hydrocarbon sector that has created wealth and supported investment. This has driven record growth rates in the region in the past five years. Diversification remains fundamental to the region’s economic stability in the long run, said Marios Maratheftis, head of Macro Research.

“We are on track to seeing better growth in 2014 versus 2013. And contrary to the popular view earlier this year, emerging markets are once again driving global growth,” he added.

“Our theme for the year was transition, a motif that applies equally well to China and the US. China is rebalancing, with policy makers working to boost consumption and services relative to investment, manufacturing and construction. Inevitably with this rebalancing comes a slowdown, but China will have to accept this to achieve sustainable growth in the future,” Maratheftis continued.

“Although transition will remain a driving force in 2015, we also expect 2015 to be a year of a great divergence. We expect a divergence in monetary policy, with the European Central Bank (ECB) going ahead with quantitative easing (QE) and the Fed hiking policy rates.

“There is also the additional divergence between economic performance and asset prices. Asset prices have been rising globally, despite disappointing growth rates in the US and Europe. Liquidity and central banks are increasingly becoming the driving forces of asset performance.”

“We expect growth to reach 3.0 per cent in 2014, up from 2.7 per cent in 2013. Following recent disappointing performance in the US and in particular the euro area, emerging markets are once again leading growth,” Maratheftis noted.

China – better Q4 than Q3 expected

China is undergoing a significant transition and is rebalancing its economy. With rebalancing comes a slowdown, but we expect a better Q4 after a difficult Q3, mainly because of policy easing and an export pick-up.

“Although rebalancing is the main medium-term objective, China will be keen to ensure that the economic slowdown remains controlled, especially for the labour market and income growth. The official growth target for this year is 7.5 per cent, with our own growth forecast at 7.4 per cent,” the report said.

US – strong growth not materialising

The market consensus persists in its tendency to overestimate the pace of US growth. Calls for strong US growth proved once again to be premature, although H2’s performance is expected to be better than H1’s.

According to Standard Chartered, US growth is likely to remain 2.2 per cent in 2014, the same as 2013. “The prevailing market view earlier in the year, that 2014 growth was going to be driven by US and European recovery has yet to materialise.”

Europe – the problems run deep

Performance in Europe continues to disappoint. Its economy is suffering from inadequate demand and excess savings. The large current account surplus, which some see as a sign of strength, is actually a symptom of the problems the euro area faces; namely, depressed salaries and the lack of demand.

Some blame the slowdown on seasonal effects and geopolitical developments. Although these might play a role, attributing the lack of performance to these temporary factors misses the real issues. When an economy is plagued by inadequate demand, deleveraging, anaemic growth, and the lack of fiscal stimulus to take up slack, events that might have a minimal impact on a growing economy could end up pushing a weak economy into recession.

2015 looks to be a year of great divergence

Transition is set to remain an important theme in 2015. What will likely be different is that monetary policy globally is becoming unsynchronised, according to the Global Focus report.

Central banks in the US, UK, Indonesia, the Philippines, Malaysia and Taiwan look set to start increasing policy rates in 2015.

“However, we expect more decisive action from the ECB with the purchase of sovereign bonds, an accommodative stance for the Bank of Japan, and broader stimulus in China. As a result, 2015 looks to be a year of great divergence,” the report concluded. – TradeArabia News Service