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Standard & Poor’s expects Gulf economic recovery to be slow

Gulf economic recovery

Gulf economic recovery from the Coronavirus will be slow, which will negatively affect the banking sector, Standard & Poor’s (S&P) credit ratings agency has said.

The Gulf witnessed a severe recession in 2020, as vital non-oil sectors were affected by the Coronavirus pandemic repercussions, most notably hospitality, trade and real estate. States’ revenues were affected by the drop in oil prices.

Gulf economic recovery

Standard & Poor’s said upcoming events such as the Dubai Expo scheduled for this year, the FIFA World Cup in Qatar in 2022 and the recovery of the oil market, will support growth somewhat; however, it will remain below its historical levels.

The credit rating agency said “most GCC countries will not return to 2019 nominal GDP before 2023, with an even longer road for Saudi Arabia”.

The rating agency expects a full recovery in the global aviation and tourism industries will take time and continued weak recovery of global air travel in 2021-2022.

In the real estate sector too, analysts expect negative investment sentiment to persist and demand remain subdued.

S&P expects banks’ asset-quality indicators will continue to deteriorate and cost of risk to remain high as they start recognizing the true impact of impairments in 2020 and forbearance measures are lifted in second-half 2021.

The agency’s analysts said the measures implemented by most central banks in the region are supportive of liquidity but do not remove or reduce credit risk from the balance sheet of banks (yet).

The credit rating agency expects that the cost of risk will remain high following its 60% rise in 2020, with banks setting aside provisions in anticipation of more pressure.

Standard & Poor’s, a financial services company headquartered in the United States, is a subsidiary of McGraw Hill Companies, which publishes financial research and analysis on stocks and bonds.

Watch this video: Persistent COVID 19 repercussions in the Gulf


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