Politics Negatively Impacts the Global Economy

1 april 2016

As the situation in Syria remains complicated, uncertainty persists in Ukraine, sanctions on Russia remain and the presidential campaign is gathering steam in the US, the Analytical Center's experts note that politics is definitely having a negative impact on the global economy. The new global economic trends bulletin is titled Taking the Pulse: Debt Problems Once Again. In Focus: Saudi Economy and Low Oil Prices. In it the experts analyze the impact of low oil prices and political uncertainty: there is a lot of anxiety around the world, only short term plans are being made, the financial markets are overregulated, and credit is paralyzed. The result is that global investments are still lackluster and there are very few positive developments in this field.

Early 2016 saw oil prices fluctuate between 30 and 40 dollars a barrel, stock markets were on a rollercoaster while the crisis in Brazil and the less serious crisis in Russia persisted, says the bulletin. Debt problems are once again on the agenda: since last December the interest rates on Portuguese and especially Greek treasury bills have been on the rise (for Greece they have hit 10%) and in Brazil, treasury bill rates have remained at 16% for the third month in a row.

The economy of Saudi Arabia is characterized by several critical parameters: oil production and export dominate, migrant workers play a disproportionately (for a major country) large role in the economy, public spending is growing very fast, including that on social needs and defense.  In 2015, the budget deficit reached almost USD 100 billion or 15% of GDP. Military spending went up by a factor of 4.4 between 2002 and 2014 in current US dollars and by a factor of 2.9 in equivalent US dollars.

The country’s oil output is roughly the same as that of the US and is greater than Russia’s at 12 million barrels a day in 2015, which is 2.5 million barrels a day bigger than in 2009.

However, as the global price of oil has plummeted, Saudi Arabia’s economy has to adapt to the new realities. As the price of exports is falling, the government is keeping the Saudi riyal pegged to the US dollar even as the country’s reserves are being depleted fast. Even though the country is implementing measures to adapt to the new situation, so far only investments have been declining. Unlike the majority of oil exporting nations, Saudi Arabia has only been spending reserves without reducing its public spending or imports while personal consumption even increased in 2015.

For other issues of our Bulletin on current trends in the global economy see Publications.