Pressure to Move
The U.S. Federal Reserve moved for the seventh time in the past six months taking interest rates down to two percent in the
Ben Bernanke and his team at the Fed hope this will be the last of the cuts and that the worst of the credit crisis has past -- don’t be too certain about that. This is what concerns central bank counterparts in the Middle East, especially those in the
Watching with anxiety what is transpiring in the
The problem, as we have talked about in this column, is quite different in the Gulf and it became more difficult this week in the region’s largest economy,
The United Arab Emirates, which is traditionally slow in releasing these figures, officially is seeing an inflation rate of 9.3 percent, but that goes back a half year. Other fast-growing, energy rich states are facing similar challenges. The real issue is what to do about it.
Finding an answer is not easy. For one, interest rates should be going up, not down. Number two, wages cannot keep pace with inflation, but leaders like Hosni Mubarak of
Fuelling the Titanic
The real challenge with inflation, as central bankers and economists know, is that when it accelerates it is very difficult to slow it down. For purposes of an easy analogy, this is not a nimble racing boat, but a high speed Titanic. The real danger at hand is the threat inflation poses for the economic development cycle now underway in the
The other issue is keeping workers in all those “castles in the sand” being constructed. The number is staggering; $3 trillion is either at work already or on the drawing boards. It will be very difficult to sustain those mega-projects if one cannot attract builders and very importantly laborers to get through the summer heat so they can send monies home to
Food for All
The region, minus the North African states, is overly dependent on imports, especially food. Gulf countries are paying for those imports with a weak dollar, which is down 35 percent against the euro in three years. The European Union is the number one market for those goods. This is where the loyalty to the dollar gets very pricey. Leaders from the United Nations and the World Bank held an emergency meeting in
It is hard to argue that countries seeing record oil revenues are suffering as badly as those say in Sub-Sahara Africa – that is certainly not the case – but rising prices are a real problem and will continue to be so.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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