IMF managing director Dominique Strauss-Kahn told a conference in Tanzania on 9 March that the fund had finally concluded that the world economy will actually contract in 2009.
This is the fifth revision in IMF global economic forecasts in about a year. Each has been more depressing than the one it succeeded. And there is no guarantee that there is no more bad news to come.
Oil prices, meanwhile, have recovered by more than 20 per cent since falling below $35 a barrel at the end of January. But they remain well below levels forecast at the end of 2008. If Opec production discipline collapses, and it has been impressive so far, there is nothing to stop prices falling close to single digits.
The light at the end of the tunnel is increased government intervention in Western economies. The Group of 20 countries meeting in the UK closed on 14 March with a call for more action to support the banking system. Direct public spending is being increased in nations with the ability to finance it. But uncertainty remains about short-term economic trends.
In the Gulf, pressure for co-ordinated action at a regional level is yet to be voiced. GCC governments are seeking to fix their own problems their own way. There is more than one reason why. The first is that the Gulf banking system has been damaged but not wrecked as it has been in the US and Europe.
Qatar’s government has announced that it plans to buy Qatari bank’s investment portfolios, but this is designed to encourage lending not to prevent the system from collapsing. The regional response has mainly involved central banks injecting liquidity to increase banks’ capacity to book new credits.
The second reason why there is no regional response is that economic and financial conditions vary enormously from country to country. Bahrain and Oman are financially constrained while Kuwait, Qatar, Saudi Arabia and the UAE, which means Abu Dhabi in this instance, are not, or, not yet. The unstated third reason is that the GCC six aren’t ready to trust in regional rather than national initiatives.
But it is clear that the challenges of the future require a more co-operative approach to economic growth. The entails developing a coherent strategic framework for the GCC, not least to avoid duplicating infrastructure investments.
This should encompass key issues including long-term investment requirements and the labour market balance in the region. Economic policy to turn these goals into reality comes next.
The commitment to currency union, still technically due to come into effect in January 2010 in five GCC states, is only one part of a comprehensive agenda for action. National plans, devised from the bottom up, should then be adjusted to fit in with the regional strategy.
This can’t be done in a hurry, but there are signs it’s beginning. It will require a conversation at every level of GCC countries societies about the vision of the region’s long-term future. But it is likely that ideas previously considered unthinkable will have to be reviewed. And it will be a surprise if they don’t include the role of indirect and direct taxation in helping to help finance governments that are unlikely to enjoy soon the enormous oil price windfalls of the past five years.