The continuing conflicts in the Middle East are expected to have a contained effect on the region's trade activity and would only have "really severe" implications if they escalate, the World Trade Organisation has said.
Global trade is forecast to rebound in 2024, but this would be limited by geopolitical tensions and economic policy uncertainties, setting the stage for flat growth over the next two years, the Geneva-based body said at the launch of its Global Trade Outlook and Statistics 2024 report on Wednesday.
The Middle East, however, is expected to hold steady despite the Israel-Gaza war and attacks in the Red Sea, WTO's chief economist Ralph Ossa said in a press conference from Geneva.
"One thing that we see so far [is that] tensions in the Red Sea of course directly affect international trade … particularly between Asia and Europe," he said in response to a question from The National.
Talks between Hamas and Israel to end the war in Gaza are taking place in Cairo, but have hit a stumbling block as the militant group has reportedly raised several objections to proposals raised this week.
"However, so far our analysis suggests that this effect is not so severe. And for it to become really severe, what would have to happen is the crisis would have to escalate and really start to affect energy markets. So we would have to see price spikes in oil for this to unfold," Mr Ossa said.
Global trade volumes fell 1.2 per cent in 2023, but are expected to bounce back to a 2.6 per cent growth this year, the WTO said.
The decline in 2023 was driven by high energy prices and inflation, which heavily weighed on demand for trade-intensive manufactured goods, according to the WTO, which held its 13th Ministerial Conference in Abu Dhabi in February.
However, this was “relatively small” and above pre-pandemic levels throughout 2023, it said, adding that growth is expected to recover gradually over the next two years as inflationary pressures ease and household incomes improve.
It also obscures strong regional variation, as import demand fell sharply in Europe, declined in North America, remained flat in Asia and increased in major fuel-exporting economies, the WTO said.
“Weak demand reduced export volumes in Europe and prevented a stronger recovery in Asia, while the picture in other regions was mixed. If the forecast is realised, Asia will make a bigger contribution to trade volume growth in 2024 and 2025,” the report said.
Global gross domestic product growth, on the other hand, also slowed down in 2023, albeit not as much as trade volume growth, the WTO said.
Real GDP growth, weighted at market exchange rates, dropped to 2.7 per cent in 2023 from 3.1 per cent in the previous year. It is projected to remain mostly stable in the next two years, inching down to 2.6 per cent in 2024 before returning to 2.7 per cent next year, it said.
Although global trade has been “remarkably resilient” in recent years despite a number of major economic shocks, risks to the forecast are on the downside because of geopolitical tensions and policy uncertainty.
These include the Russia-Ukraine and Israel-Gaza wars, as well as the conflict in the Red Sea, where shipments have been forcibly diverted as a result of Yemeni Houthi rebel attacks on shipping.
“It's imperative that we mitigate risks like geopolitical strife and trade fragmentation to maintain economic growth and stability,” Ngozi Okonjo-Iweala, director general of the WTO, said in a statement.
Trade is one of the key pillars of the global economy as it contributes to efficiency and promotes competitiveness, allowing countries to access goods and labour forces.
But while geopolitical tensions have affected trade patterns, these have had a “marginal” effect and “have not triggered a sustained trend towards deglobalisation”, the WTO said.
Wednesday's WTO report also confirms its forecast in February, in which it said global trade growth would be likely to miss its target this year.
On October 5, the WTO forecast a 3.3 per cent expansion in global trade for 2024, but this was made before the Israel-Gaza war that began two days later. Still, the new forecast is a marked rebound from the 0.8 per cent growth recorded in 2023.
However, a high degree of uncertainty remains with the current outlook, “due to the large number of risk factors present in the global economy”, the WTO said on Wednesday.
Inflation, meanwhile, is expected to decline this year and would lead to a rebound in consumption of manufactured goods, which in turn should boost trade volume growth in 2024 and 2025.
Inflation, which had spiked at the start of the Russia-Ukraine war in February 2022, remained well above pre-pandemic levels by the first quarter of 2024, the WTO said.
Global energy prices, on the other hand, were down about 41 per cent on average from their peak in the first two months of 2024, but remained 30 per cent higher than in 2019, the report said.
Oil prices had recorded a strong gain in the first quarter of the year amid Opec+ output cuts and rising fears of supply disruption caused by conflict, rising about 13 per cent in the first three months of 2024.
Any consistency in the drop of inflation levels would lead policymakers to eventually cut interest rates, the WTO said. The US Federal Reserve is expected to start cutting rates at its June meeting, which would prompt other major central backs to follow suit.
Central banks in advanced economies raised interest rates beginning in 2022 to mitigate inflationary pressures, but that resulted in eroded incomes and reduced consumption of goods, the WTO said.
Cutting rates “should stimulate investment spending [albeit with a lag], which is intensive in capital goods trade,” it added.
“Tighter monetary policy has largely succeeded in bringing down inflation, but correctly timing the relaxation of these policies will be challenging for policymakers.”
The WTO also said that trade will not be dictated solely by the US presidential elections this year, even with presumptive Republican candidate and former president Donald Trump threatening more tariffs, particularly on China, in the event he returns to the White House.
"It's not just the US; something like 50 countries this year have elections, which of course adds to trade policy uncertainty," Mr Ossa said.
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
Gulf rugby
Who’s won what so far in 2018/19
Western Clubs Champions League: Bahrain
Dubai Rugby Sevens: Dubai Hurricanes
West Asia Premiership: Bahrain
What’s left
UAE Conference
March 22, play-offs:
Dubai Hurricanes II v Al Ain Amblers, Jebel Ali Dragons II v Dubai Tigers
March 29, final
UAE Premiership
March 22, play-offs:
Dubai Exiles v Jebel Ali Dragons, Abu Dhabi Harlequins v Dubai Hurricanes
March 29, final
MAIN CARD
Bantamweight 56.4kg
Abrorbek Madiminbekov v Mehdi El Jamari
Super heavyweight 94 kg
Adnan Mohammad v Mohammed Ajaraam
Lightweight 60kg
Zakaria Eljamari v Faridoon Alik Zai
Light heavyweight 81.4kg
Mahmood Amin v Taha Marrouni
Light welterweight 64.5kg
Siyovush Gulmamadov v Nouredine Samir
Light heavyweight 81.4kg
Ilyass Habibali v Haroun Baka
MATCH INFO
Champions League quarter-final, first leg
Ajax v Juventus, Wednesday, 11pm (UAE)
Match on BeIN Sports
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More from Aya Iskandarani
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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