Banque Saudi Fransi (BSF) said concerns are escalating over the spread of Greece’s debt crisis into other EU nations and to what extent this could wreak havoc on the euro, "which is facing its biggest test since its inception".
"European financial markets will inevitably unfold across the world, hurting equities, commodities and currencies alike – and the Gulf is no exception. The GCC will also have to watch EU crisis management techniques, which could have implications for its own beleaguered monetary union plan," BSF said in a flash report sent to Emirates Business.
"The Gulf would look to assess the institutional mechanisms needed to support members who run into fiscal and liquidity problems."
BSF said it believed direct exposure by Saudi banks and other businesses is not large, adding that it could widen if the crisis spreads into other EU members. It noted that such exposure would be still not threatening.
But it cautioned that the kingdom, the world’s dominant oil powerhouse, and its partners in the GCC should not be complacent towards that problem.
"Saudi Arabia and its Gulf neighbours need to be vigilant in facing what is increasingly becoming clear is a fragile global recovery that is holding ground only on the grace of hefty state stimulus intervention.
"Investors will continue to be anxious as they contend with Europe’s serious fiscal problems, poised to hit Middle Eastern countries with varying degrees of intensity," it said.
"How well the EU defends its single currency and the success of efforts to fend off a global sovereign debt crisis that would drag the world back into recession will underpin policy responses in the coming months."
The report said Saudi Arabia, which pumps nearly 10 per cent of the world’s oil supplies, is well-placed to respond to possible headwinds coming its way.
But it added the kingdom could be still affected by any possible downward impact of the EU crisis on crude prices, which plummeted by more than $ 100 a barrel in the few weeks after the eruption of the 2008 global fiscal turmoil. "Having held above $ 80 a barrel for two months, oil tumbled more than $ 10 last week to this mid-$ 70 level, weighed by worry that the euro zone debt crisis could derail the tenuous global economic recovery," the report said.
"Saudi Arabia regards $ 75 oil as a perfect price to serve the prevailing economic conditions globally. The price enables it and other heavily oil-reliant economies to keep investing in building energy output capacity for the medium term. Fiscally speaking, Saudi Arabia will remain on firm footing, able to generate a budget surplus this year so long as oil prices average $ 65 a barrel. Should oil breach $ 65 a barrel, this could prompt Opec action to put a floor under declines. With ameliorating trade flows in the first quarter, meanwhile, the kingdom is poised to comfortably achieve a current account surplus in 2010 exceeding the nearly SR100 billion (Dh98bn) surplus it generated last year despite global economic jitters.
