Fourteen years ago, in December, 2007, a decade of economic expansion in the US came to an end. The growth period prior to that – which ended in 2001 – lasted 10 years.
Officially the recession in the US that followed the financial crisis and collapse of Lehmann Brothers investment bank only lasted about two years.
However, we were plagued by relatively weak levels of economic growth – not just in America but around the world, too – for at least 10 years from that point.
Then we were hit by the pandemic in early 2020. The prognosis for growth was bleak a year ago, amid lockdowns and stalled businesses.
Now it would seem though that in the wake of Covid-19 we might be once again on the brink of a new era of outstanding economic growth.
Goldman Sachs expects the UK economy to grow 4.8 per cent next year, the US to grow 3.5 per cent, 4 per cent in Germany and 4.4 per cent in Italy and France.
The final three months of 2021 have been a period of increased economic activity despite the spread of the Omicron variant of the coronavirus.
In the US, for example, growth forecasts for the fourth quarter are at as high as a 7.5 per cent annualised rate. The country is expected to grow 5.6 per cent this year, which would be the fastest since 1984, according to Reuters. The American economy contracted 3.4 per cent in 2020 by comparison.
"The economy was running on all cylinders in the fourth quarter," Diane Swonk, chief economist at Grant Thornton in Chicago told Reuters.
On Wall Street, for example, investment bankers brought in hundreds of billions of dollars in fees this year. They are anticipating bumper bonuses.
As some of the world’s leading business and economics experts explained on a new podcast series by The National, called PCR: Post Covid-19 Recovery, we are experiencing a fast economic rebound.
In the latest World Economic League Table, the Centre for Economics and Business Research says global GDP in 2022 will cross $100 trillion for the first time. In 2020, CEBR forecast that this would not occur until 2024.
“There is substantially more momentum going into 2022 than we had previously envisaged,” it said this week.
The final three months of 2021 have been a period of increased economic activity despite the spread of Omicron
However, Omicron’s effect will show up next month as events and travel are cancelled and there is less spending after the New Year amid increased restrictions and staff shortages.
This hit to growth will pass quickly, according to experts.
Governments are ready to support the recovery, which should get us through any rough patches like Omicron.
For example, the People’s Bank of China has promised to be “proactive” with its policies and Japan has passed a record budget for the next fiscal year.
Besides surging Covid-19 cases, another concern to mitigate any optimism has been rising prices for everything including fuel and food.
Inflation could dampen growth if it doesn’t abate as soon as many predict it will.
These are known risks at least.
If the sunnier assessments prove accurate, we should shrug them off by the middle of next year. Given what we have been through over the past two years it would be understandable if the natural response of decision makers would be to remain cautious or even pessimistic.
Instead, we could in fact experience outsized economic expansion in 2022 and beyond – far better than what we had before the pandemic and representing a return to levels of growth we saw before the financial crisis.
This is partly because of the pandemic not in spite of it.
Many chief executives around the world are worried about their own positions, according to a survey by consultancy AlixPartners. Their insecurity is caused by the disruption to a vast range of industries that has been accelerated and they must now adapt to that change far quicker than they expected just a year ago.
The jeopardy they are now facing means that dynamic strategies must be embarked upon aggressively.
Investment in technology, innovation and the emergence of new business models will spur on the global economy.
There will also be an acceleration in the job market.
CEBR said in advanced economies “the numbers of engineers and technologists that will be required within 10 years will be roughly double the number that are currently employed”.
“Artificial intelligence, robotics, virtual and augmented reality and medical are areas where we expect 300 per cent growth or more” in the UK.
As we enter the third year of the pandemic, we are also in the second year of the recovery phase and the “scale of the economic hit from the pandemic in 2020 now seems to have been a little less severe than we had assumed”, CEBR said.
If the recovery also proves to be better than expected, it could be a bumper time for more of us than just the bankers.
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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
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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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UAE Falcons
Carly Lewis (captain), Emily Fensome, Kelly Loy, Isabel Affley, Jessica Cronin, Jemma Eley, Jenna Guy, Kate Lewis, Megan Polley, Charlie Preston, Becki Quigley and Sophie Siffre. Deb Jones and Lucia Sdao – coach and assistant coach.
