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GCC faces key risks if coronavirus impact is not contained by March

Dubai - Several on-going projects will have to face delay or disruptions.

GCC economies will be facing a major setback if the coronavirus outbreak in China would not be contained in the first quarter, global ratings agency S&P said on Monday.
"We expect the impact will be limited assuming the virus will be contained by March 2020, allowing travel and other restrictions to be unwound in the second quarter, and there is no major impact in oil prices," Mohamed Damac, S&P primary credit analyst said.
(Coronavirus: Everything you need to know about the Covid-19 Wuhan virus outbreak)
Damak said there would certainly be an impact on visitors to the region, investments and potentially commodity prices if the virus is not contained by March and travel restrictions are not lifted.
All members of the GCC - Saudi Arabia, the UAE, Bahrain, Qatar, Oman and Kuwait - stand to suffer from the travel restrictions, but the business hub of Dubai could see the biggest impact, S&P analysts said.
"Virus-related travel restrictions, if not lifted as we expect, could weigh on the GCC's hospitality industry, but more so in Dubai, which received almost one million visitors from China in 2019," S&P said.
If the virus continues to spread, there is a risk that the economic impact could increase unpredictably, with credit implications not just for China but elsewhere. "For the GCC, this could result in a drop in oil prices, economic growth, and real estate prices, alongside a change in government spending, which could put pressure on regional issuers we rate. Under our base-case scenario, however, we expect the impact on our ratings to be limited for now," S&P said.
GCC's construction sector, which is heavily reliant on Chinese imports, will also be facing imminent crisis as shipments from China have been temporarily halted. Several on-going projects will have to face delay or disruptions if normalcy in shipments originating from China is not restored by March, Dubai based traders said.
Bankers attending a trade finance event in Dubai on Monday said coronavirus had not yet impacted trade flows in the Gulf but that corporates were starting to assess contingency plans in case Chinese exports are limited further over the coming months.
One local banker said banks had started seeing delays in documentation management for goods shipped from China to the UAE.
S&P analyst Zahabia Gupta said Oman's economic downside risks were higher this year because of weaker oil demand and its exposure to China.
About 45 per cent of Omani exports, mostly oil, go to China, making it the most exposed of the Gulf Arab states to developments in that country, said S&P.
GCC fiscal deficits will rise next year because of expected higher spending, lower oil prices and weak growth. This year S&P expects oil prices to be around $60 a barrel and next year $55 a barrel. Saudi Arabia's fiscal deficit could hit 7.4 per cent of GDP this year and rise to 8.1 per cent in 2021. - issacjohn@khaleejtimes.com