DUBAI: Qatar’s economic prospects have been termed “negative” by one of the world’s leading investment organizations, and the Gulf state could see its rating downgraded in light of the sanctions imposed by the Anti-Terror Quartet.
S&P Global Ratings, one of the “big three” US credit-ratings agencies, said that the outlook for the country’s economic and financial system “primarily reflects our view of the geopolitical risks and potential consequences of the ongoing diplomatic tensions for Qatar’s economic, fiscal, and external metrics, especially if the boycott is tightened or prolonged.”
Qatar’s economy could further deteriorate if the boycott — led by Saudi Arabia, the UAE, Bahrain and Egypt — is intensified, S&P said in a report issued on Saturday.
“We could lower the ratings if the boycott ultimately has a more severe impact than we currently anticipate, leading, for example, to significant capital outflows or pressures on the hydrocarbon sector. The ratings could also come under pressure if Qatar’s fiscal or external performance turned out weaker than our current forecast.
“Should the boycott drag on, and the Qatari public sector continues to draw on its external assets to support the economy, we could reassess our current estimation of the government’s liquid assets. We could consider a downgrade if we believe the Qatari authorities’ fiscal cushion to absorb additional shocks has reduced,” S&P added.
Since the quartet of Arab countries, later joined by Libya and Yemen, introduced measures against Qatar over its funding of terrorist organizations, its policymakers have been spending huge sums to compensate for lost trade, tourism and transport links with its neighbors.
The situation could deteriorate further if the anti-terror alliance increased financial pressure by closing or appropriating Qatar’s financial assets across the region, which have so far been left largely untouched.
“The Qatari authorities continue to effectively use the country’s large fiscal and external assets to mitigate the impact of an ongoing Saudi-led boycott. Nevertheless, the boycott is expected to continue for an extended period, with no clear resolution in sight,” S&P judged, ranking Qatar’s long- and short-term foreign and local currency sovereign ratings at AA- and A-1+, below prime investment-grade status. In contrast, S&P rates Saudi Arabia and the UAE economic outlooks as “stable.”
Qatar’s rulers have been withdrawing from a range of overseas investments to preserve cash to deal with the crisis. “The government has taken measures to ease the immediate economic and financial effects of the boycott. In particular, it has established new trade routes through other countries in the region, resulting in a recovery in imports,” S&P said.
“The fall in non-resident deposits and inter-bank placements has been offset by liquidity injections by the Qatar Central Bank and repatriation into the domestic banking sector of about $40 billion (24 percent of gross domestic product) of public sector assets mostly owned by the Qatar Investment Authority (QIA), previously held abroad.”
The report also raises questions about the ability of the Qatari political system to withstand a long-term anti-terror campaign.
“In our view, the country’s public institutions are still relatively undeveloped compared with those of most sovereigns we rate in the ‘AA’ category. Executive power remains in the hands of the emir. We see the predictability of future policy responses as being tempered by weak political institutions,” the rater said.
Other economic analysts have also noted the cost to Qatar of continuing to resist Arab demands. Jason Tuvey, Middle East analyst at London-based Capital Economics, said recently that GDP growth had shrunk to 1.4 percent in the first quarter of 2018, down from 3 percent last year, reflecting a slump in hydrocarbon output, with tourism and banking hit especially hard.
Qatar economic rating risks being downgraded: S&P
Qatar economic rating risks being downgraded: S&P
- Qatar’s economy could further deteriorate if the boycott is intensified
- The situation could deteriorate further if the anti-terror alliance increased financial pressure by closing or appropriating Qatar’s financial assets across the region
Global brands shut Middle East stores as conflict causes chaos
- Luxury brands and retailers close stores in Middle East
- Conflict threatens the region that has been luxury’s fastest growing
- Mass-market retailers monitor situation, adjust operations in region
PARIS: In Dubai and other major Middle Eastern shopping hubs, many stores are closed or operating with a skeleton staff as the escalating conflict in the region causes chaos for businesses and travel.
The US-Israeli air war against Iran expanded on Monday with no end in sight, with Tehran firing missiles and drones at Gulf states as it retaliates for a weekend of bombing that killed Iran’s supreme leader and reportedly killed scores of Iranian civilians, including a strike on a girls’ primary school.
Chalhoub Group, which runs 900 stores for brands from Versace and Jimmy Choo to Sephora across the region, said its stores in Bahrain were closed, while other markets, including the UAE, Saudi Arabia, and Jordan remained open though staff attendance was “voluntary.”
“We operate with a lean team formed of members who volunteered and feel comfortable to come to the store,” Chalhoub’s Vice President of Communications Lynn al Khatib told Reuters, adding that the company’s leadership team personally visited Dubai Mall and Mall of the Emirates on Monday morning to check in with workers.
E-commerce giant Amazon closed its fulfillment center operations in Abu Dhabi, suspended deliveries across the region and instructed its employees in Saudi Arabia and Jordan to remain indoors, Business Insider reported on Monday, citing an internal memo.
Gucci-owner Kering said its stores were temporarily closed in the UAE, Kuwait, Bahrain and Qatar and it has suspended travel to the Middle East.
Luxury growth engine under threat
Shares in luxury groups LVMH, Hermes, and Cartier-owner Richemont were down 4 percent to 5.7 percent on Monday afternoon as investors digested the knock-on impacts of the conflict.
The Middle East still accounts for a small share of global spending on luxury — between 5 percent and 10 percent, according to RBC analyst Piral Dadhania. But the region was “luxury’s brightest performer” last year, according to consultancy Bain, while sales of expensive handbags have stalled in the rest of the world.
Now, shuttered airports have put an abrupt stop to tourism flows into the region and missile strikes — including one that damaged Dubai’s five-star Fairmont Palm hotel — are likely to dissuade travelers, particularly if the conflict drags on.
“If you assume that it’s a $5 billion to $6 billion (travel retail) market and let’s say it’s going to be shut down for a month, we are talking about hundreds of millions of dollars that are definitely at risk,” said Victor Dijon, senior partner at consultancy Kearney.
If Middle Eastern shoppers cannot travel to Paris or Milan, that could also hurt luxury sales in Europe, he added.
Luxury brands have been investing in lavish new stores and exclusive events across the region. Cartier unveiled a “high-jewelry” exhibition in Dubai’s Keturah Park just days before the conflict started.
Cartier and Richemont did not reply to requests for comment.
Luxury conglomerate LVMH has also bet big on the region. Last month, its flagship brand Louis Vuitton staged an exhibition at the Jumeirah Marsa Al Arab hotel, and beauty retailer Sephora launched its first Saudi beauty brand.
LVMH does not report specific figures for the region, but in January Chief Financial Officer Cecile Cabanis said the Middle East has been “displaying significant growth.” LVMH did not reply to a request for comment on how its business may be impacted by the conflict.
The Middle East has also attracted new investment from mass-market players. Budget fashion retailer Primark said in January that it plans to open three stores in Dubai in March, April and May, followed by stores in Bahrain and Qatar by the end of the year.
“Primark is set to open its first store in Dubai at the end of March but clearly this is a fast-moving situation which we are monitoring closely,” a spokesperson for Primark-owner Associated British Foods said.
Apple stores in Dubai will remain closed until Thursday morning, the company’s website showed, while Swedish fast-fashion retailer H&M said its stores in Bahrain and Israel are closed.
Consumer goods group Reckitt has told all employees in the Middle East to work from home, temporarily closed its Bahrain manufacturing site and suspended all business travel to the region until further notice.
