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Where Does Oman’s Economy Go From Here? – Forbes

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Oman has faced two great challenges in recent years, only one of which has been within its control.

The first was organizing a smooth succession from Sultan Qaboos bin Said Al-Said, who had been receiving cancer treatment for several years and was looking increasingly frail in his rare public appearances. He died on January 10, after almost 50 years on the throne, having modernized the country beyond recognition and navigating the complex politics of the region with an unusual degree of tact.

His handpicked choice of successor – in a process that was clouded in some mystery and potentially open to dispute – was something of a surprise. Haitham bin Tariq Al-Said was one of three cousins of Qaboos earmarked for the top job, but he was certainly not the front runner. The swift process of anointing him the next ruler was a clear sign the political elite in Muscat wanted to portray a sense of calm continuity, lest any neighbors spot an opportunity to get involved.

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The appointment of Sultan Haitham also offers a hint at how seriously Qaboos viewed the second major challenge facing the country: it’s fragile, underperforming economy.

Sultan Haitham is fairly well versed in economic matters, having been chairman of the Oman 2040 committee which was set up to formulate a new, more diverse economic path for the country. That experience will be extremely useful in the years ahead.

Oman has far fewer resources to draw on than most of its neighbors. Its foreign exchange reserves and sovereign wealth fund assets are together worth around 50% of GDP, far less than most Gulf neighbours have, according to London-based Capital Economics.

The country has oil and gas reserves, but they don’t provide enough income to cover the government’s large expenditure bill. In essence, Oman has been living beyond its means for many years, running persistently large budget and current account deficits. To finance these, the government keeps on issuing debt. The debt-to-GDP ratio has risen from 5% in 2014 to 60% of GDP now.

To help match its income and spending, Muscat has also looked to its richer neighbors for support, but while it has been able to secure some assistance, it has not been given as much as Bahrain. The likes of Saudi Arabia and the UAE are less supportive because of Muscat’s more independent position on regional matters. Under Sultan Qaboos, Muscat was known for building bridges rather than walls and it failed to support Riyadh and Abu Dhabi’s policies of isolating Iran and Qatar.

Like most Gulf countries, Oman keeps its currency pegged to the U.S. dollar in an effort to provide more economic stability. This makes sense given the chief export, oil, is priced in dollars, but maintaining the exchange rate is not always easy due to the weakness of the economy.

“The new leader faces a difficult task of securing financial support from its neighbors in order to maintain the dollar peg,” says Jason Tuvey, senior emerging markets economist at Capital Economics. “At the very least, fiscal austerity will need to continue and we think that it will be the Gulf’s worst performing economy over the next couple of years.”

Whether the new ruler will be prepared to maintain the level of austerity that economists say is needed remains to be seen, but most observers expect a fairly high degree of policy continuity from the old ruler to the new, at least at first. Haitham’s first public comments as Sultan indicated he would maintain Qaboos’s foreign policy approach too.

The pressure will continue though. Ratings agency Standard & Poor’s says the new Sultan “has a narrowing window to address the country’s fiscal and economic challenges” and has suggested some big policy changes are needed.

“In the absence of substantial fiscal measures to curtail the government deficit, fiscal and external buffers will continue to erode,” the agency warned in a statement issued on January 12. “We anticipate that Sultan Haitham will face a difficult trade-off in the coming months between addressing social concerns, partly arising from weak growth and high youth unemployment, and rising fiscal, external, and funding pressures.”

The Omani authorities have proved wary of putting the population under too much pressure. Intermittent protests over the past decade have generally been met with promises of more spending and job creation, as well as arrests. New taxes have been repeatedly delayed. A value-added tax (VAT) is now due to be introduced in 2021, years later than initially planned, but could easily be postponed once again.

The World Bank has previously warned that “A key risk facing Oman is that the pace of fiscal and structural reforms may slow, hurting investor confidence and prospects for debt sustainability.”

Austerity economics on their own are not really the solution though. Oman needs to diversify its economy away from oil and gas and develop more industries to provide jobs for its young population. Robert Mogielnicki, resident scholar at the Arab Gulf States Institute in Washington, argues there are three key priorities: efficient spending, making quality investments and high-impact reforms.

All three are more easily identified than delivered. When it comes to investing in pursuit of diversification, for example, there is stiff competition from nearby countries in almost every area that Oman could conceivably target, whether that is tourism, logistics, heavy industry or high-tech innovation. But at least a ruler in good health is better able to focus on these issues than one constantly diverted by the need to receive medical care.

Like his predecessor, Sultan Haitham will have a lot of power concentrated in his hands. As well as being Sultan, he will also fill the roles of prime minister, finance minister, foreign minister, defence minister and supreme commander of the armed forces. He may find it politically astute to hand some of these files to others, to craft a broader cabinet and build alliances. But whoever is making the decisions will not find it easy and, ultimately, the responsibility will fall on the Sultan to deliver.

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Economy

Beijing At A Loss On What To Do About Its Economic Challenges? – Forbes

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China’s annual “Two Sessions” conference has for decades revealed the party agenda to the faithful. This year’s meeting offered them little, a startling development given China’s huge economic and financial challenges – a property crisis, export shortfalls, demographic decline, a loss of confidence among consumers and private business owners, and growing hostility in foreign capitals. More than ever, China needs Beijing to act, to point the way to future action. The failure to address this need at the Two Sessions suggests that China’s leadership has run out of ideas.

Most telling was the absence of the traditional press conference. Every Two Sessions meeting has included a space for China’s leadership to interact with both domestic and foreign media. The senior men in government were not always forthcoming at these exchanges, but their evasive answers at least pointed out publicly what matters they considered touchy or awkward. When this year’s press conference was cancelled, one can only conclude that the good and the great in the Forbidden City worry about being embarrassed.

The authorities did announce a real growth target for 2024. They set it at “around 5 percent.” In one respect, this information can only be described as bland. It was expected and is very close to last year’s pace. In another respect, however, it confesses failure of a sort. It is, after all, barely over half the real growth rate China averaged up until 2019. And with all the problems, it is not clear that China can even make that rate. Last year the economy had a tailwind from pandemic recovery. None of that is in play in 2024. Meanwhile, the authorities never explained how they intended to achieve the growth.

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Infrastructure spending was mentioned, one trillion yuan ($132.9 billion) worth of it. Infrastructure is China’s default form of economic stimulus. But little was said about how China would finance such spending. Local governments, the usual source of infrastructure financing, face huge debt overhangs, some so severe that they cannot even meet the public service needs of their populations. True, Beijing said it was ready to take the unusual step of issuing central government debt to finance the spending. But even that raises questions. The government already faces record high budget deficits. The emphasis on “ultra-long bonds” may hint at how difficult financial matters have become. Long maturities will delay the need to repay the debt and show that Beijing does not expect an immediate return from its spending.

Little was said about the property crisis with all its adverse economic and financial ramifications. Despite the need for bold action on this front, all Beijing has mustered so far are the “white lists” in which local governments compile a list of failing real estate projects for financing that the state-owned banks would review before advancing the funds. The amounts discussed so far, however, are tiny compared with the need, barely over 5 percent of Evergrande’s initial failure two and half years ago. Some weeks back, talk emerged about a plan for the government to take over some 30 percent of the housing market. Although such an action would have brought China other severe problems, it would have been big enough to disguise the property crisis. Nothing as bold or substantive as that got a hearing at the Two Sessions.

On China’s deflation problem, the authorities did indicate a target of 3 percent inflation for the year but said nothing about how they planned to achieve it. To be sure, deflation is more a symptom than a cause of the country’s challenges, which in part lie with inadequate demand for consumption and capital spending by private business, but neither did China’s leadership say much about these problems either. The only concrete suggestion was a promise by the People’s Bank of China (PBOC) to cut interest rates more than the bank already has. Given the lack of an economic response to past rate cuts, this promise hardly seems an adequate answer. In any case, as soon as the conference ended, the PBOC at its own meeting decided against another interest rate cut.

Talk did center on new growth engines for the economy, what the conference referred to as “new productive sources.” There was little new here. Renewable energy, advanced technology, and electric vehicles led the list. Like so much else offered at the Two Sessions, the talk was all aspirational. No one suggested how China planned to promote these areas beyond what is already being done. Given the sorry state of China’s economy, that is not enough.

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If the Two Sessions is supposed to announce a guide to China’s future, this year’s meeting missed its mission, especially in the face of China’s many economic and financial problems. Perhaps more complete and substantive guidance will emerge at next month’s politburo meeting, but given how the Two Sessions went, that seems unlikely. China’s leadership seems to have run out of ideas.

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U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Canadian economy starts the year on a rebound with 0.6 per cent growth in January

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

WATCH | The Canadian economy grew more than expected in January: 

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Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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