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Dubai: The expansionist policies of the US Federal Reserve could result in a synchronised global economic recession, but the Gulf states could escape the threat, said Hong Kong-based investment guru Dr. Marc Faber.
Addressing delegates at a special Middle East Investment Day, organised as part of the three-day Middle East IPO Summit, which opened yesterday in Abu Dhabi, Faber said: "It is quite likely that the current synchronised global economic boom and the universal, all-encompassing asset bubble will lead to a colossal bust."
Faber said the GCC countries should fare better than other emerging markets. He said the secular uptrend in commodity prices is still intact, although sharp corrections will be experienced as much through market jitters than fundamentals.
Oil prices
"The price of oil is expected to soften as the US heads deeper into recession. However, with Opec not producing more oil and demand from the emerging markets remaining strong, prices will hold firm," Faber said.
The huge GCC surpluses are expected to help the region fight global recessionary pressures. The size of GCC budget surpluses is estimated at $150 billion and now growing at $ 1 billion per day.
"Colossal amounts out of these reserves are being wisely invested into infrastructure at home and overseas investments could be repatriated, dampening the effects of any slowdown in the regional economy," said Deep Marwaha, senior conference manager.
According to Faber, expansionary US monetary policies, which caused the credit crisis in the first place, are the wrong medicine to solve the problems. They can address the symptoms of the excessive credit growth but not the cause.
He said that even though the emerging markets were performing well, investors could still pull out the much-needed capital.
"In essence investors withdraw from these markets to cover losses incurred elsewhere - this merely proliferates the 'global effect'," he said.
"It is difficult to see a way out of this looming crisis," Marwaha said.
"Central bankers have become hostage to inflated asset markets and tightening money supply will be difficult. Tight credit markets would also stifle GDP growth."
It is quite likely that the current synchronised global economic boom and the universal, all-encompassing asset bubble will lead to a colossal bust."
Dr Marc Faber, Hong Kong-based investment guru
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