Doha meeting to take stock of volatile economic climate

By R Seetharaman/Doha

R Seetharaman: Group CEO, Doha Bank

Bankers and traders face some tough decisions going into 2012, as they strive to decipher an abundance of mixed economic messages. Market conditions are grim, with traders’ confidence eroding again in the grip of volatile markets, with supply and demand of trade finance in jeopardy and regulatory constraints causing great concern. The biannual International Chamber of Commerce (ICC) Banking commission meeting, that is being held at La Cigale Hotel, Doha, from today until March 29, is designed to take stock of the current volatile economic climate. The meeting, whose theme is “Reframing the future of trade finance”, will feature recent ICC market intelligence on trade finance as well as discussions on ICC works-in-progress such as the International Standard Banking Practice revision, the drafting of Bank Payment Obligation and forfeiting rules and a review of Basel III.This year’s meeting will also feature a special focus on the Middle East and North African Region (Mena) and on Qatar in particular - one of the fastest growing economies in the world.The World Bank said international trade would expand only 4.7% in 2012 and 6.8% in 2013, as the European recession and a slowdown in developing countries threaten to stall global economic growth. The bank said global trade, which includes goods and services, expanded 6.4% year-over-year in 2011, mainly on strong growth at the beginning of the year. Trade fell off later in the year after consumer demand in Western countries weakened and natural disasters disrupted supply chains in Japan and Thailand. World trade recorded its largest-ever annual increase in 2010 as merchandise exports surged 14.5%, buoyed by a 3.6% recovery in global output as measured by gross domestic product (GDP).Output of developed economies rose 2.6% in 2010 after falling 3.7% in 2009 while the rest of the world grew 7.0%, up from 2.1% in 2009.Developed economies exports rose by 12.9% in 2010 after falling 15.1% in 2009. China made an outsized contribution to the recovery of world trade in 2010, as the country’s exports increased by a massive 28% in volume terms and imports swelled by more than 22%.Asian trade in 2010 was dominated by china and Japan. Exports of the US grew slowly in 2010. The growth in Asia and North America was greater than world average. In 2010 those regions which export natural resources (Africa, the Middle East and south America) had low volume of export growth but increase in value of dollar exports. This could be seen in rising primary commodity prices (due to QE 2), which resumed their upward trajectory in 2010, after plunging in 2009.Middle east GDP grew by 3.8% in 2010 after growing at 0.8% in 2009 due to the global economic crisis. Middle East exports grew by 9.5% in 2010 after contracting by 4.3% in 2009 due to the crisis. Middle East imports grew by 7.5% in 2010 after being contracted by 7.8% in 2009. Overall, 2010 was the year of revival for trade for Middle East countries after the crisis. I expect 2011 exports of the Middle East to be better than 2010 on account of higher oil prices. The higher consumption from emerging markets and also from Japan could boost the GCC trade in 2011. However the regional and global trade is witnessing shocks, mainly from the European Union, which is felt in the second half of 2011 and first half of 2012. Iran developments could also impact GCC trade in medium to long term. The 2012 outlook demand for trade finance products showed that demand in emerging Asia was the strongest and the euro area the weakest ( mainly from second half of 2011). Factors contributing to the negative outlook for 2012 were primarily financial constraints that reduce the availability of trade finance. Less credit or liquidity available at counterparty banks” would affect their trade finance activities to some extent.The withdrawal of European banks from global trade finance has had a major impact on the ability of companies to arrange for trade finance in many markets.One of the challenges facing the global economy today is how a more stringent regulatory environment – as represented by the new Basel capital framework – may impede a trade-led recovery as countries strive to export their way out of the current dire economic condition. Preparation for the implementation of Basel III seems to be already adding pressure on the cost of funds and the availability of liquidity particularly on larger banks. For the year ended 2011 in Qatar, the unfunded credit facilities rose from QR114bn to QR126bn, out of which the letter of guarantees arose from QR 94bn to QR102bn and the letter of credit arose from QR20bn to QR24bn.For year 2012 up till February the unfunded credit facilities dropped from QR125.6bn to QR124.2bn out of which the letter of guarantees dropped from QR102bn to QR99bn and the letter of credit rose from QR23.6bn to QR25bn. This ICC meeting will also include consultations with heads of global trade from major international banks as part of a series of regional consultations led by the ICC G20 Advisory Group around the world, ahead of the upcoming G20 summit in Mexico in June.Since its creation in May 2011, the G20 Advisory Group has been leading the development of ICC policy input to the G20 process in areas including: trade and investment, financial regulation, anti-corruption, the international monetary system, commodity price volatility and green growth.