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ANALYSIS

GCC regional reopenings – the path to the next normal

DUBAI, June 1, 2020

Lockdowns and social distancing measures are beginning to ease across the GCC countries given tentative signs that these economies are passed the peak with a flattening in the curve of new Covid-19 cases on the horizon, said a new report.

At the current juncture, it is too early to decipher whether the easing of lockdown is feeding through to a meaningful pick-up in economic activity, said MUFG, a leading global financial services group, in its latest Mena Economic Weekly report.

What is clear is that despite the phased easing in restrictions, the GCC region is by no means out of the woods. The past couple of months have been strenuous and destabilising. The region is steadily looking to life post-Covid-19 towards a path of a new normal but there currently remain more questions than answers. However, there's room for hope, tempered with caution.

Lessons from early openers across the world

“Our examination of countries that have reopened more versus less speedily across the world thus far, offers three encouraging lessons,” the report said.

First, early reopeners have not witnessed higher confirmed Covid-19 incidences thus far.

Second, corporates and broader financial markets have tentatively begun to reward the early reopeners with modestly higher asset returns and easier financial conditions – in contrast to the "peak lockdown" period of early April, when reopening was associated with lower asset returns and tighter financial conditions.

Third, not all reopenings are homogeneous with heterogeneity abound across countries, and if medical outcomes can avoid left tails, corporates and markets may reward reopenings.

Outlook

Certain events split eras into times before and after. It is clear that our era will be defined by a fundamental division: what we knew as normal before Covid-19 and the new normal that will emerge in the post-viral era – the next normal. For the GCC economies, the conversation is beginning about what the next normal could entail and how sharply its contours will diverge from those that previously shaped the region.

What is evident in the immediate term is that all these countries continue to grapple with both the demand-side evisceration shock caused by Covid-19 induced restrictions and the supply-side shock caused by the oil price collapse. Facing either one of these shocks would be unprecedented. The combination of the two, signals a sudden deep and acute recession this year, with risks skewed to the downside.

Nearly all GCC countries have announced an easing of lockdowns:

Saudi Arabia The Kingdom has started implementing a three phased approach to easing restrictions, with all curfews to be lifted by 21 June. Since28 May, curfews have been reduced, between3pm to 6am and from 30 May between8pm to 6am, when mosques can also resume prayers. Makkah will remain under stricter curfews while the rest of the country starts to open and Hajj and Umrah pilgrimages continue to be suspended. Domestic flights will resume from 1 June, but international flights remain suspended, possibly up to September.

UAE Dubai has relaxed free movement, allowing business activity to resume during reduced curfews from 11pm to 6am. Since 27 May, Dubai airport began welcoming returning residents, subject to 14 day on arrival quarantine, and passengers on transit. The UAE aims to welcome tourists from July and is gradually allowing a resumption of retail and hospitality activity.

On 21 May, Emirates airlines which has formally requested financial support from the government, resumed flights to nine destinations. Separately, Federal government employees in UAE have resumed work since 31 May, first phased at 30% capacity. In Dubai, half of government employees have returned to offices since 31 May, ahead of a full return by 14 June.

Oman Oman will allow business activity to resume and has ended the lockdown within the capital, Muscat since 29 May, allowing travel to resume in and out the city. However, Muttrah district, where the majority of Covid-19 cases have been recorded and where many low wage foreign workers live and work, remains sealed off. Since 31 May, half of government employees have returned to work.

Bahrain Since 22 May, certain commercial and industrial business activities have reopened.

Kuwait The Kuwaiti government did not extend its full curfew beyond 30 May and instead switched to a 12 hour partial curfew from 6pm to 6am commencing31 May, as part of a five phase plan

Qatar There are few signs of an imminent easing of restrictions in Qatar as cases continue to edge up. Qatar's Minister of Health stated on 21 May that the country is entering the "peak stage" of its Covid-19outbreak. New cases have averaged 1,757a day since then, up from 1,483a day in the previous seven day period.

High frequency data has demonstrated the scale of the challenge. Early activity data for April measured by the all-important Purchasing Managers Index (PMI) –the leading indicator and barometer of the health of an economy which is highly correlated with non-oil GDP growth –signalled that acute containment measures have taken an unprecedented toll on corporate output across the region.

The impact of Covid-19 on the non-oil economy across the GCC region varies from country  to  country,  in  line  with  the  share  of  economic  activity  in  each  that is  most adversely  impacted  by  government  measures  to  control  the  spread  of  the  disease. – TradeArabia News Service




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