The world is facing a very difficult six months as mounting geopolitical risks exacerbate economic hardship, with the situation expected to deteriorate before improving, panellists told the Future Investment Initiative.
Nations need to come together to find solutions to the economic predicaments they are facing as they have no other option, Saudi Minister of Finance Mohammed Al Jadaan told FII delegates in Riyadh on Wednesday.
“I can tell you worldwide it is going to be a very difficult six months.”
However, the wider Middle East is largely split into two parts — GCC nations and other countries outside the bloc.
“I think the next six months and possibly the next six years are going to be actually very good,” Mr Al Jadaan said referring to the GCC. “For the wider region, it is going to be very difficult.”
Globally, nations should ensure “there is more collaboration and co-operation to bring about stability”, he said.
Sheikh Salman Al-Khalifa, Bahrain’s Minister of Finance and National Economy, who participated in the panel discussion along with Steven Mnuchin, former US treasury secretary and managing partner at Liberty Strategic Capital, said a “multitude of challenges” had weakened the economic outlook.
“Inflation is certainly one of them, driven by the disruption in supply chains coming out of Covid and compounded by the conflict in Europe,” he said.
“Now it is a period where there is food price inflation [and] energy price inflation and that is a big issue.”
Economic dynamics are further compounded by the fact that many countries have “limited fiscal space, coming out of Covid-19 [which] battered the ships and battered their sails, and then we are sailing into another storm”, Sheikh Salman said.
The global economic momentum has slowed amid strengthening geopolitical headwinds, including Russia's war in Ukraine and China's relations with the West.
Inflation, in particular, has also dented economic activity. Earlier this month, International Monetary Fund managing director Kristalina Georgieva said the world was facing a recession in 2023.
In its latest economic outlook, the IMF cut its growth forecast for 2023 and warned of a cost-of-living crisis.
The fund maintained its global economic estimate for this year at 3.2 per cent but downgraded next year's forecast to 2.7 per cent — 0.2 percentage points lower than the July forecast.
The IMF expects global inflation to peak in late 2022 at 8.8 per cent and to remain elevated for longer than previously expected, before falling to 4.1 per cent by 2024. Inflation is forecast at 6.5 per cent in 2023.
“I don't want to underestimate the next six to 12 months as things are gonna get worse before they get better. But I believe there is an end in sight, so long as we can deal with some of these geopolitical risks,” Mr Mnuchin said.
A global response is needed to address geopolitical risks, similar to what was put in place during the fight against the pandemic.
“We need the same type of response … because the economic risks and the geopolitical risks are tied together…. this can't be solved by just the US [alone],” he said.
China and US, the world's two largest economies, also need to resolve their issues and learn to coexist.
“I hope President [Joe] Biden and President Xi [Jinping] will get together because, again, we need global leadership to deal with these global political issues,” Mr Mnuchin said.
The US, the world’s largest economy, was already in recession and would continue to be, with 10-year Treasury rates peaking at 4.5 per cent, Mr Mnuchin added.
On Tuesday, JP Morgan Chase chief executive Jamie Dimon and his counterpart at Goldman Sachs, David Solomon, said that the likelihood of a recession in the US was increasing as the Federal Reserve continues to increase its policy rate aggressively.
The Fed is meeting next week and is expected to raise interest rates by 75 basis points for a fourth consecutive time as it vies to tame inflation, which is at a four-decade high.
Annual headline inflation in the US was up 8.2 per cent in September, down from its peak of about 9 per cent in June, but still near the highest levels recorded in the early 1980s, the latest economic data indicates.
Core inflation for September was up 6.6 per cent from a year ago, the biggest 12-month gain since August 1982.
“A combination of higher US rates, higher oil prices [and] higher mortgage rates, I think you are going to see inflation in the US begin to come under control,” said Mr Mnuchin. “Now, it will probably be a two-year period.”
In terms of challenges faced by Middle Eastern economies, he said these issues should be resolved at a regional level.
It is “our role to help the region” and ensure availability of microfinance to keep economic momentum going, Mr Jaddan added.
“A lot of countries [globally] are going through a very difficult time when it comes to debt … these are pretty difficult situations,” he said.
“I can tell you, within the region, what Saudi Arabia did is that we mobilised regional multilateral development institutions to make sure that we provide support to countries in the region.”
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Left to right: Bill Winters, chief executive officer of Standard Chartered, Lorenzo Simonelli, chief executive officer of Baker Hughes, Jennifer Holmgren, chief executive officer of Lanzatech NZ, Matthew Harris, founding partner of Global Infrastructure Partners, Henrik Andersen, chief executive officer of Vestas Wind Systems A/S, Abdulaziz bin Salman, the kingdom's Minister of Energy, and Yousef Gamal El-Din, Bloomberg Television anchor, at the 'Science in Action' panel session at the Future Investment Initiative conference in Riyadh. Bloomberg -
Saudi Arabia's Minister of Investment Khalid Al Faleh is pictured during an interview with AFP TV on the sidelines of the annual FII conference in the Saudi capital Riyadh. AFP -
Tareq Al Sadhan, chief executive of Riyadh Bank, centre, at the FII conference. Rising energy prices are likely to linger for some time, posing one of the most serious challenges to the global economic recovery and raising the potential risk of social unrest, some of the world's top executives said on the first day of the investment forum. Bloomberg -
Joseph Bradley, chief executive of NEOM's Tech and Digital Holding Company, speaks during an interview with AFP on the sidelines of the annual FII conference. AFP -
Nadhmi Al Nasr, chief executive officer of NEOM, during a Bloomberg Television interview at the FII conference. Saudi Arabia said global efforts to cut planet-warming emissions must avoid hurting poor countries' economies. Bloomberg -
Steven Mnuchin, former US Treasury secretary, attends a Bloomberg Television interview at the conference. Bloomberg -
Mr Mnuchin, right, attends a panel session at the conference. Bloomberg -
Saudi Arabia's Minister of Energy Abdulaziz bin Salman at the conference. Saudi Arabia could go carbon neutral before its target of 2060 if technology evolves quickly enough, he said, days before the Cop26 climate summit. AFP -
Attendees between panel sessions at the FII conference in Riyadh. Bloomberg -
A promotional booth for Oceanx at the conference. Bloomberg -
Attendees during a break between panel sessions. Bloomberg -
Female employees assist a guest at the conference. Bloomberg
