Economic Analysts to QNA: Raising US Interest Rates will Affect Arab Economies

Doha, November 05 (QNA) - Economic analysts confirmed that the Federal Reserve (the US Central Bank) raising interest rates 6 times this year will have significant effects on global economies and financial markets, including the Arab ones. Analysts said, in statements to the Qatar News Agency (QNA), that raising interest rates means an increase in bank deposits, and a lack of investment in the markets, which raises fears of a recession that may face the world's economies, noting that reaching the interest rate of 4 percent is very tempting for many traders which will attract investors to bank deposits. The Financial analyst Ahmed Aqel believes that the American decision, even if it is in the interest of lenders such as banks and financial institutions, imposes great challenges on the listed companies, including that their capital increases under it will often take place through the issuance of new subscription shares instead of bank borrowings. It will also tend to distribute free shares more than cash in an attempt to maintain liquidity, in addition to what the decision imposes in terms of high debt service. He warned that the global economy may face a recession as a result of the temptations of interest rates, which encourages deposits in banks, and some may resort to selling their assets and savings in an attempt to benefit from these profits, especially if they are for long-term periods, which means withdrawing liquidity from the markets. In his statements to Qatar News Agency (QNA), Aqel said that raising interest rates is not in the interest of any of the investment tools, whether at the level of the stock market or investing in gold, oil or other investment ways. Indeed, this rise, which is ultimately an increase in bank deposits and a lack of investment in the markets, calls for fear of a recession that may face the world's economies. He considered that the strict policy taken by the US Federal Reserve in the recent period will have a very important impact on the financial markets in the world, including the Arab world. He added that the interest rate reaching 4 percent is very tempting for many traders, which will attract investors to bank deposits, especially in light of unclear conditions regarding the level of recession and the economic future in many countries. Financial analyst Ahmed Aqel confirmed to (QNA) that the Arab countries have no choice but to secure the needs of local markets through internal sources and resources to maintain their foreign exchange reserves, and at the same time try to curb inflation and seek economic integration that secures or exploits internal resources and Arab wealth, to reduce imports. Despite the expected recession globally, he saw that there are real opportunities for businessmen to benefit from the need of the internal markets, and the support provided by Arab governments to manufacture a local product that may have a higher competitive profit margin than it was previously, compared to foreign goods. For his part, economic analyst Ramzi Qasmieh said, in statements to Qatar News Agency (QNA), that GCC countries are among the Arab countries that will benefit from raising interest rates, as they follow the approach of US monetary policy, and their currencies are linked to the US dollar, which will preserve the attractiveness of their currencies, and thus the continued flow of capital as a result of competition for bond returns. Qasmieh considered that this alignment with the policy of the Federal Reserve (the US central bank) spares the GCC countries the so-called "interest trade." However, he considered that the Arab countries in general do not have many economic tools to reduce the effects of high interest rates on food and energy, except to take local austerity measures; With the aim of reducing consumption or directing government subsidies to some commodities. He added that the increase in interest rates will burden countries that suffer from high debt-to-GDP ratios, because it will lead to a significant increase in debt service costs, which will increase the volume of subsidies directed to goods and energy, and will indirectly lead to a change in behavior and consumption patterns by increasing the burden of loans, especially real estate, which will exhaust the bulk of the citizen's income, so that a small part remains that can be directed to goods and services. In his statements to (QNA), the economic analyst pointed out that in light of the US Federal Reserve's continuing to raise interest rates, the talk is no longer about the global economy entering a slowdown, but rather in an economic stagnation as a result of the decline in the attractiveness of investment projects, because the returns on deposits are high and they have low risks, which necessarily leads to directing money to saving rather than investing. With the US Federal Reserve raising interest rates, which is the strictest in the bank's policy since the 1980s, economists expect the increase in interest rates to continue by another half a point next December, and then by a quarter point in each of the next two meetings, to bring interest rates to 5% by March 2023. This trend enhances the growth of the US economy in the third quarter of this year, exceeding expectations, recording 2.6 percent on an annual basis, to end two chapters of deflation, in addition to the recent data of the US Department of Labor, which indicated that the US economy added more jobs than it had expected last October, after non-farm payrolls increased by 261,000, wages rose strongly, and the unemployment rate is still historically low despite the rise in layoffs, which may motivate the Fed to continue tightening monetary policies. Although expectations are that the Federal Reserve and market forces will eventually defeat this inflation, and drop it in the horizon of 2023 to below 5%, it is likely that the consequences of high interest rates will remain on the global economy for years to come. (QNA)