Global financial crisis hits GCC economies in 7 key areas

Sheikh Abdullah bin Fahid Al Shakrah, Chairman of Al Hanoo Holding and Emirates Industrial Cities, said on the subject:

"The effects of the financial crisis on the world's economies were immediate and also varied, with different countries being affected to different degrees, depending on the nature of their economies and policies. As for GCC countries, the effects of the crisis have hit seven vital areas of the economy, but, in the medium term, these effects will gradually turn out to be positive."

"The areas affected by the crisis include dollar exchanges, bank operations, real estate development, tourism, oil production, and public and private income. But these negative effects will gradually be reversed, if we take into consideration the other side of the recession: the decline of inflation. Many GCC countries are eagerly awaiting a decline in inflation rates in order to achieve economic stability, as the fall in the price of construction materials will lead to a reduction in the cost of real estate development. Once the recession has passed, the prices of other products and services will also decline, as GCC currency value will start to rise due the recovery of the dollar. This will definitely enhance the living conditions of both GCC citizens and residents," added Al Shakrah.

The global financial crisis has inflicted losses on the stock market similar to those of 2006, and when the financial markets were ready for a recovery process, the crisis hit hard to bring the loss margin to a similar fashion as in 1984.
The numerous fluctuations of the dollar have had devastating effects on the economic structure of GCC countries, inflicting heavy damage on their currencies and raising inflation rates.

Banks have also been affected by the crisis. Many banks invested in foreign assets, looking to increase their profits, but when the US sub-prime crisis arose, numerous depositors withdrew their money from the banks, complicating matters and causing a severe crisis. This has led countries to take precautions and implement measures to regulate loan and deposit procedures.

As for the real estate sector, in 2007 and the first half of 2008, there was an increase in basic property value of 60%. As a result, when the crisis hit, many investors and developers lost their liquidity and were unable to continue development, causing heavy damage on the market.

Another area that was deeply affected by the crisis is the tourism sector, as people have cut down on their travel and entertainment due to the crisis. Analysts report that the aviation sector has experienced the worst effects, as the sector faced numerous problems even before the crisis hit, beginning with rising fuel prices, which resulted in an increase in ticket prices.
The oil sector was also hard-hit by the financial crisis, with prices dropping to a mere $40-50 per barrel, after prices peaked at a staggering $148 per barrel in July 2008.

Last but not least on the list of affected areas is the total and personal income rate. As all of the market sectors are closely connected to each other, any fluctuation in any one of these sectors will eventually affect the other sectors as well. This will, in turn, affect spending rates, including consumption and investment expenditure, as well as the income rates for firms and individuals, who, as those at the bottom of the economic food chain, are the most affected by the crisis.