Have you got a contingency plan in place in the event of a global downturn? Trevor McFarlane, chief executive of consultant Emerging Markets Intelligence & Research, suggests you get one.
Speaking at EG’s Middle East Real Estate Forum, McFarlane, who advises chief executives in the Middle East on a variety of business issues, ran through a list of recessionary risks. And, yes, they included, but were by no means confined to, Brexit.
Era of non-cooperation
Donald Trump’s trade dispute with China lay behind his first warning, but was, he said, just “the tip of the iceberg”.
“I think that historians in the future will look back at this period and say this was the beginning of a chapter of when we saw a slowdown of globalization but also an era of non-cooperation.
“We’re facing an environment where the US, Russia, China and the EU are not interested in cooperating with each other in certain areas.”
Uncertainty, and worse, is the upshot. “If you step back and blur your vision and you picture the future of this non-cooperation in very specific areas, what you’re faced with is more volatility,” he said.
“When you have more volatility obviously it’s more difficult to predict scenarios. It’s more difficult to forecast. And predominantly where this has an impact for us here in the Middle East, which is of incredible importance for real estate, is of course it spills over into oil. It spills over into interest rates, into currencies.”
McFarlane warned the consequences could be dramatic. “There is an increasing narrative or conversation around the idea that there is going to be a global recession,” he warned. “Paul Krugman winner of the Nobel Prize in economics said that he expects that there will be a global recession in the second half of this year, or maybe 2020.
“Everyone has to ask themselves is my business actually equipped for a global recession?”
But is it likely? There are mitigating factors too. With Trump and Chinese premier Xi Jinping looking to stimulate the economy for reasons of re-election or legacy respectively, there is likely to be a cushion in the second half of 2019.
Similarly, delays are cushioning the impact of the “epic psycho drama” of Brexit. For now at least.
Different forecasts
“It’s unlikely in the second half of the year that you’ll have a global recession,” he said. “The base case scenario is that.”
But it’s not impossible. McFarlane adds: “The downside scenario is President Trump is more erratic than I think and therefore there is some kind of dispute perhaps over the auto tariffs and the global economy goes into a very dark place.
“So you have to ask yourself: ‘Do I have the contingency plans as a business to deal with a downside scenario’? It’s the scenario that we don’t think is most probable but one that we should always be prepared for.”
“The Euro area is arguably the one that could stumble and actually causes the global recession,” he said.
“You’re looking at the US doing OK in the short term. Medium- to long- term Asia is still performing relatively better than the rest of the rest of the world, but I think we all are in a mentality of what we hope for at best is this deceleration of growth.
“Nobody can predict these things. It could be a much harder landing, in which case it comes back to that question – ‘are we ready for this?’ And what do we do? What is a contingency plan for our business?”
‘I think there’s a great opportunity for bringing people over for Expo’
Many cities that hosted business festivals have seen little benefit, but Dubai would experience an upside from Expo2020, according to Trevor McFarlane.
“Mostly around the world I perhaps wouldn’t be as enthusiastic about expos. But for Dubai specifically I think Expo is actually a very good idea.”
McFarlane said the benefits were usually seen in hard and soft infrastructure legacy.
“You look at what Dubai is actually trying to achieve in the long term. Actually an expo fits in quite well in terms of trade, transport, tourism and the infrastructure that’s being built.
“Also what Expo really allows Dubai to do is showcase. In many ways Dubai is like amazing business class lounge. And I think there’s a great opportunity for bringing people over for Expo to recognize that Dubai has great infrastructure and access to talent.
“It has a diverse talent pool, it has connections with all the rest of the world in terms of great lifestyle and access to good education for children.
“It becomes a great base. So, I think with Expo in the short term we’ll see a bit of a bump.”
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