The modest pick-up in oil prices recently amounts to yet another reminder that consensus expectations will often be wrong, or at least misleading as a guide to the short-term outlook. Gold's turnabout belongs in the same category of behaviour.
That's not only logical, as immediate market volatilities may well drown out the underlying fundamentals applying over time, but also to be expected if you consider the efficiency (even imperfect) of international, liquid markets in discounting anticipated factors. Once everyone is talking about the next big thing, it's already Â€˜in the price'.
Thus it is that both retail investors and jobbing journalists may cotton on to a trend that's developed — in financial markets, anyway — just when it's run its course.
That said, it's early days still in 2014 as to where oil prices are heading, and, in any case, what buoyancy there has been has hardly been transformational. For the Gulf's producing and exporting countries there's still enough basis for concern about likely receipts this year, and indeed into the longer term.
It's on that sort of foundation that this column has touched on analytical attention to GCC governments' budget policies. Many sources have testified that what are called Â€˜budget breakevens' (ie, the level of oil prices in relation to spending commitments and revenue-raising precedents) have been on the rise, and expenditure plans would be susceptible to falling earnings.
In principle, as Dr
A report by economics think-tank CEBR recently described the multi-dimensional context in this regard. "Exceptionally strong population growth across the region, combined with industries which are traditionally capital, rather than labour, intensive has left governments facing difficulties in providing productive employment for their workforce." In the face of tension among a relatively youthful populace, state outlays have increased as a mollifying measure. "Many countries need to walk a tightrope — avoiding agitation, creating employment without excessive spending, and raising revenue."
That assessment was aimed at the
Readers might wonder, though, how budget stresses can really be a serious matter when funds appear flush in terms of the surpluses on the balance of payments with the rest of the world.
Domestic finances surely should be able to rely on the GCC countries' vast accumulations of capital and derived income, so that talk of budget deficits imposing burdens and constraints would seem alarmist. Or is that too simplistic a view?
On the face of it, the favourable assumption is underlined by studies indicating that oil prices have a long way to drop yet to impose significant pressure on national accounts.
Harking back to the IMF staff's latest regional review (November), that made clear an opinion that "heightened risks" lay ahead, with financial balances weakening according to baseline projections of oil prices (see box, charts). Clearly, though, annual current account data and their track record ought to provide an ample cushion.
"In the GCC, government spending is a main driver of growth, so the spillover, both economic and social, from a government having to cut back could be significant," says
So perhaps it is stretching a point to suppose that Gulf governments may find their policies under a cloud through sunken oil prices. At the same time, such a scenario cannot be ruled out, especially as the world could yet be in for another deflationary shock.
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