Real feel for supply and demand. And president trumps Jerusalem Decision continues to make waves. The United States uses it veto for the first time to block a u. N. Security resolution on the issue. For expansionary budget 2018 for saudi arabia. A boost in spending in almost 300 billion. 2. 7 , gdp to expand to after shrinking by. 5 in the last year. Here is how we covered the story. The chairman of the company, the minister of energy, the ceo and i thinkny, ideo we expect the the ipo will attract people. That tadawul is one option and we are also looking at many s, going through a lot of discussion and assessment. This is not a normal ipo, it is an ipo for the world. We want to make sure that we do not leave any stone unturned, to ensure we are doing what needs to be done to choose the right one. Yousef some additional revenue could be what is happening with what is going on with the governments anticorruption crackdown. Here is what he had to say about that. The attorney general made a whatclear statement that is in theccused of of 100 billion. What will be covered as a matter of settlements that they will make, the Court Rulings for those who choose not to settle that go through the courts as well. Of 100 billion. What will bethis takes time, ant want to circulate specific numbers. I really do not have any , whether itormation is this year or next year. That money will go back the allocation of those funds will be going back to the budget. We have heard from the king that the budget is spent on health care, education, and for the people. Yousef we also spoke to the economy minister who told me that the plan is to gradually move saudi arabia away from its reliance on oil. It is a fine balance that they need to strike. It is balanced approach to the whole solution. The positive and there is some side effects as well. We expect to be economy growth to start going up in 2018. Our objective again, is to have a gradual Economic Growth rather than a sharp one, exposed totally to the volatility of the oil crisis. Yousef let us get more with the Bloomberg Economics editor. He joins us from dubai. These see this as more supportive for growth than in previous years . And how much does it surprise you. Reporter the budget is certainly more supportive for growth. If you look at how much additional spending the government is injecting into the economy, as opposed to how much it is taking away from the private sector in terms of taxes, lower subsidies and the like. The government is planning to inject about 14 billion in additional spending and planning to increase oil revenue by about 9 billion through the introduction of the 80s lower subsidies and so on. Spending is expected to increase by about 5 billion next year, the first time for the overall economy since 2014. That is why we are expecting growth to go up next year. Built a chart as well on the basis of your research and Mother Research from analyst input weve had over the last 24 hours on the basis of your research and other research from analyst input weve had over the last four hours. Growth has been a real struggle. What is your outlook for 2018 . How successful do you expect this program to be for 2018 . There is a tight link between Government Spending nonoil gdp growth, and because of the amount of stimulus we are getting next year will be higher than what we had penciled in, we revised our nonoil gdp forecast up from 0. 7 previously to 2 for 2018. That comes on the back of the expectation that the opec cuts impact on gdp will drop, so we expect the overall economy to grow in 2018, compared to the small shrinkage in 2017. Yousef thank you very much for that insight. Live out of dubai, let us also bring in the head of microstrategy. Just to dig into the latest numbers that you just heard, how much do you agree or disagree and how much of a surprise were the figures when they came out . Guest that is a critical thing. If you look over the past few months, the saudi government and saudi officials have been flogging the 2018 they have been saying that 2018 will be the year of expansion. You have the restoration of allowances, then following an imf report, you had quite a bit of commentary from the saudi government saying that oil prices were covered, and you have a nonoil revenue that is improving. The imf also thinks we have more time to rebalance the economy, so they are making it quite clear that 2018 will be a relatively stronger year. A year of later government stimulus in the economy. What is worth looking at is some of the other nonfiscal measures as well. You have women beginning to drive next year which potentially brings in new workers into the workforce. Which ishave the vat negative maybe for consumers, of for the loosening restrictions on the private sector activity, it could add further support to the economy. Yousef is it still too early to really be able to assess consumer reaction and sentiment more specifically . The economy minister pointed it out in my conversation with him, that they are trying to find the balance with the Growth Program and also not talking up growth. Is there a risk that we could another recalibration early in 2018, depending on how these reforms take hold . Thet i think of course, authorities will be looking at how the consumer, how the private sector more broadly, reacts to the measures they have taken. In the next few months you have vat coming, oil subsidies, private citizen accounts which are very important sources of support for disposable income, and of course, the authorities will be looking at how much room they have potentially for additional stimulus. One thing that they have posted in signs around the area is how subsidies will be changing in the midterm. How the budget will look in the medium term. It is good for a private sector for a number of reasons, which has been feeling a lack of confidence in the past few years. It gives them a sign of how much energy will cost and markets will begin pricing that in today. Come, saudil to arabias Energy Ministers tells us what he says wait and see before making any decision on the output cuts. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. About independent Oil Producers who say that they do not intend to revisit their for june. Eements that is according to the saudi economic minister who made it clear that Oil Inventories will not be anywhere close to the level needed by the time opec meets then. He also said that he is waiting until the second half of 2018 to see where the world lays in terms of supply and demand. Premature to is change views from what we had in the ni in november. Whenever asked in b r vienna in november. We never expected to see a major draw and oil in general, we have seen in the build that surprised a few people, especially with gasoline and product in general in the u. S. But if you look at the totality in the number of oil products, it is consistent with the seasonality that we expect, and a continued high level of by theity and compliance countries that are party to the supply constrained agreement. Markets will always overreact to shortterm events. We have seen them react in a bearish way when such data came out. I am looking in the longterm, i the second half of 2018, to see where we are in terms of supply and demand. There is no intent to revisit what we have agreed on. Yousef it is interesting. You have quite a few folks coming in with calls, Goldman Sachs for example saying that you might be looking at an earlier and to your cut as there is cuts. The still feel strongly about pushing through to 2018 with this agreement and revisiting it in the summer . Point our single data that we will be monitoring as we go forward, is inventories and how closely aligned they are with the global need. The fiveyear average, depending on what five years you are looking at, has been referred to as a target. As a mentioned in the anna, na we will vien create a new target by the june meeting, but i do not think we would be anywhere close to it. It would be something completely unexpected which could take place and persist for a longer time frame. So we will not be reacting to any shortterm events. Insef what are your plans terms of reducing subsidies and increasing energy and fuel prices . Do you have anything firm at this point . Guest and the energy front, platforms have been part of our reform program. Of price changes place two years ago, and the next phase will take place in january of this year. Electricity tariffs will be partially, to allow cost utility by the electric , assuming that fuel prices are at an international level. Gasoline, and anyone dollars will rise to 91 willional prices rise to international prices. Yousef you were advised by that russian president , there were pictures and videos circulating of you and some interesting clothing which was a rare sight. Can you give me a sense of the appetite that saudi arabia has in terms of pursuing projects with russia, be it in the arctic or elsewhere . Guest my perspective is to capitalize on the clear alignment on economic and particularly energy. Comfortably onat the oil side, where both countries are probably benefiting significantly in. Erms of Oil Market Stability that has created an environment of trust, an environment of interest. Russia i wassit to impressed by the capabilities of the russian industry, and their ability, but i have also become equally convinced that we can do business with the Russian Companies. We have invested Russian Companies to invest in the kingdom and there is a 1 billion fund between the. Direct Russian Investment Fund to invest in companies in the oil and Gas Industries in particular. We are evaluating a number of these investments between the pif and russia. There is a clear possibility of that, including on your earlier question on gas, and also refining invest months and investments. So there are discussions between saudi aramco and Russian Companies, about investment in refining and downstream assets. Next, the jerusalem drama continues, forcing the United States to veto a Un Security Council resolution for the first time in six years. Details next. This is bloomberg. Yousef welcome back to best the Bloomberg Markets middle east. Talk about the fallout from president trumps controversial decision to recognize jerusalem as the is really capital. The u. S. Ambassador nikki haley, used the first veto to block that you and Security Council resolution. 2017 in general has seen geopolitics return to the four. Which is why i asked return to the fore. I asked our guest, what does he see as it big issue for 2018 . Guest i think if you are living and the gcc, the issues closer to home are the ones we are worried about. Want any, wenot hope that in 2018 will see that levels of situations easing off. We hope that will happen. Things move fast in this region, and as fast as they heat up, they cool down. We are hoping that there will be a neutral effect on geopolitics on the situation, going forward, which will allow other positives oil, toacros like effect. Ive the for example in that gcc, saudi and uae, bread prices Oil Prices Went up. Effect. We saw nothing of that getting reflected into the equity markets, that growth. We hope these kind of things geopolitics are neutral, we can get a positive effect going forward. You also have to remember that there are geopolitics around the world. North korea is a big story, and some of those issues either go faster or grow worse and that can affect us. Yousef you have been covering the region for a very long time. I would like to leverage on that track record, and outside of saudi arabia, what are you passionate about at the moment as we go into the new year . Can you give us some of your top thoughts here . First i believe that quarter of 2018 will be good. That pes of companies are in the range of 10 , as in the uae and kuwait for example. Those are the good markets that we look at. If you look at, in and bahrain, it could be a little bit on the negative side. 8 growth, seven and which could go into stocks as well. 42018, i think it. Ould be a year of extremes my personal view is that it could be either very positive, in terms of increase of positive asset performance, or it could go very negative. 2018 could be the 10 Year Anniversary from the financial crisis of 2008. All International Park at have positive movement, all International Markets are experiencing positive situations right now. Bonds for example, regionally, you would see things like some Equity Companies doing negative. Done a is in negative territory. Dana gas isliked also in negative territory. So there are lines of cracks in those asset classes. Bitcoin is another asset class coming into the picture. You say bitcoin is another asset class but you are recommending to clients now as well . Guest no. [laughter] guest not at all. Our approach is really to be more on the moderate to such aative side, on risky asset. You can try to go there, i would not consider it an investment but a gumbel a gamble. What worries me and a time like this when you would expect gold going up, we see it going stable. It tells me that there is a lot of competition on the speculative money, even safe money areas such as gold, people are going into areas like bitcoin and other alternatives. So there are areas where i think liquidity although there are areas where it looks liquidity although there are areas where it looks good, with governments for example, with individuals it could be challenging. With things like the vats, and the slowdown of the private sector. Yousef up next, saudi arabia was not the only nation talking about a narrow budget deficit this week. Australia as well. We will hear from a guest on that next. This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Welcome back to the best of Bloomberg Markets middle east. Budget deficit a narrow budget deficit forecast for this year for this country. Wage Growth Continues to budget, and officials have maintained their forecast for 2021. I spoke to the treasurer who join me live from australia. What has been happening in australia over the last five years ors know is the Mining Investment, the impact on prices disrupted normal transmission in the labor market. With that passing through the economy, we expect a more normal relationship and the labor market to come back into action. As a labor market continues to tighten, we expect to see stronger which outcomes over the next four years. The other part of this is in the september quarter, we had light consumption figures. Overall, we have an improvement in the budget position, which has largely come because of our lower payments that we are expecting, due to the reforms we are putting into the welfare sector and keeping oi spending under control. Yousef you look at some of your years in the u. S. And the United Kingdom and other places around the world, unemployment rates are lower there. Why is australia different . Guest for the reason i just said, it has to do with the impact in the Mining Investment boom on the labor market in australia. This ride out between consumer and other wages. Consumers, for a long time were able to realize wages that were paying well above where productivity was. Some years later, as the impact works its way out of the system, we start to see that two lines of producing and consumer wages come together. Yousef you have corporate profits being swollen by higher Commodity Prices. Are you being conservative enough given the volatility that we usually see and Commodity Prices . Guest we have put the risk in our budget on Commodity Prices for the past few years, and nothing on our budget has anything to do with Commodity Prices. We have been extremely , andrvative on oil, coal other things like that. Our resources. We factor that in, and our priced 55 on iron or, for example im a while it is closer to 60 today. The improvement in the overall economy in australia comes out of the Mining Investment. The Mining Investment is forecast to be up to 5 . Private investment up 7. 5 , Public Investment up 12. 5 . It is very much an investment driven story in our economy at the moment. Yousef efforts to lower some of the personal income taxes, how realistic a goal is it . Guest totally realistic. That is what we are focusing our attention on, we want to put more back in the pockets in households. Especially in australia, the focus on our efforts between now and next year. That will be done at the same time, while not putting at risk our Credit Rating which would have continued to maintain in a pretty challenging environment. We are one of the few economies that has been able to maintain a aaa rating. We are maintaining our trajectory back to a budget balance in 2021 which is now forecast to be up by 10 billion. We had this conversation a year ago, and that same year it was forecast to be one billion, so that is a lot of improvement, coming in the last two years. Yousef the rba has been on hold for a year and a half. As you look to the road ahead, how much tolerance do you think australians have for higher rates . Right now, i do not think there is any risk of that being realized. It is obviously a decision for the independent right now, i dok there is any risk of reserve tak here in australia. One of the things we did was de , particularlyts the real estate markets are we had such as in melbourne, we had a lot of supply and demand cities and wehose changed the rules around interestonly lending. It has taken away a lot of the heat from those markets, bringing it back down to a soft landing. The Housing Market is very significant in australia and this really looks to be a stable place going forward. I think for more generally at the cash rate, there is no real pressure on the cash rate with dealing with Housing Market shocks. We had a very calibrated policy response which has been in pretty smooth territory. Yousef the u. S. Dollar has been going from weakness to weakness. As you look to 2018, will you get relief on the policy front . It looks like relief is what you would use right now . Guest that has happened a bit of late. We make our decisions based on where it is trading on that particular day, we do not do that, we look at the longerterm forecast. What we looking at is what is happening with Corporate Tax rates. It is not just the trump tax cuts, the french government, the United Kingdom government, and here in our region, even the japanese government have been making some noises. We have our own response to that in our tax plan which could bring Corporate Tax rates down to 25 . We remain very committed to get it through the parliament. Yousef . Howar of recovery, that is one strategy is discovering the 2018 best describing the 2018 outlook for the middle east. This is bloomberg. Yousef welcome back to best bama 2018 welcome back to best the Bloomberg Markets middle east. According to simon kitchen, he is saying that economies are heating up and nations are shaking off the effect of geopolitical stresses. Him why heasking thinks things are looking up for the region. Guest you have had the full impact of last years evaluation, the austerity measures required by the imf last years devaluation. I think you will see a lot of relief next year. Theitical part of that is cap and interest rates. We think that the Egyptian Central Bank will be cutting rates aggressively over the next 12 months, and they already signaled that their most recent rate rice was temporary. Rate rise is temporary. The conditions are prime for a rate cut and that could help drive equities higher in egypt. He also have a recovery in consumer spending, certainly better than this year. Factors like remittance is like you mentioned, recovery in tourism and then, the major gas field which is coming on stream which could be good for the advance of payments and growth in 2018. Yousef what will be the key risk of been for egypt in the new year . Managing the security situation, managing inflation . What is the top of the year rate on . I supposeve the security will always be there in the background and you also have an election. Midyear frankly we think the risks are to the upside right now. You have had a. Growth,ngtime of low you do not want to say that there are no risks but given the valuations in the market in the upside, we see strong earnings. Also developing interest from Foreign Investors. Yousef i was looking through , overnight. H, simon what else would i do late at night in riyadh . You called kuwait, a standout. Why is kuwait going to outclass some of its peers in 2018 . Guest with the msci and the he ftse,ndex, and the kuwait has made a lot of the reforms that the index providers require over the past year, and we will see it upgrade in the ftse next year which could bring in about 800 million. Listing forechnical a Power Company which could bring in an extra 200 or 300 million and i think that kuwait could be on the watchlist for the msci e. M. Index status as well. You have an economy that has always been robust, not the most exciting in the region, and you also have a lot of money coming into a market that is beginning to do the right things. And importantly, Foreign Investors and even original investors have never really looked at it seriously before. Yousef if you take a look at the wider emergingmarket space, it has been a crazy year for politics. He e. M. And politics go handinhand, but it was a little more than usual this year. Turkey, south africa, the list goes on. The recovery in oil prices though, does it make you a bull when it comes to stop stories like nigeria, which was also in your research . Guest you have a slight overhang in nigeria. The president has been in and out of there, but he has a capable vice president. What we like in nigeria is the fact that it is on the same half as egypt. The currency has not completely reverted to a market rate but they are doing the right things. Of theet quality story nigerian banks is still good, we think the stocks have rallied a fair amount in 2017 and there is still some upside there. Yousef what is one contrary and call that you have for 2018 contrarian call for 2018 . I think you have to keep an eye on qatar. Yesterday, for a lot of regional investors, qatar has been a no go i think you have to keep an eye on qatar. Area for a lot of this year. Valuations have come down a lot, and there is a risk that some stocks could be pulled out of other markets in the new year. Selling andgood good quality names, there was a lot of value that opens up. Qmb area for a lot of this year. Like. Ewc, we they could create buying opportunities, a market that might get a lot of attention in 2018. Yousef up next, as bloomberg publishes its guide, we take a depressing look at the decade ahead. This is bloomberg. Welcome back to the best the Bloomberg Markets middle east. This weeks, we published the guide to the decade ahead. Amongst the worst case in areas are north korea threatening war, generational warfare destroying europe. Guests from the Canadian Imperial Bank of commerce what was keeping him awake at night. It seems to be very clear to therkets are headed a end of the year having had a banner year. North korea as you mentioned, up, that is what it comes down to, removal of accommodations. A faster pace at and what would be the triggers for that . I was having a conversation with a major investor yesterday around bitcoin and why a lot of people miss out on this coin. It is because a lot of us operate within the status quo and within institutions and we cannot foresee the next big trend. That is what we see as the black swan, for example. Swan, for example. What are major risks that could fit into a pessimist guide like that . Guest one thing that really stands out i think, is trade. We know that the negotiations are going on at the moment and have been quite fractures. Onmp is focusing more stridently on what is happening in china, we know that there are other trade agreements looking red gel as well. We believe that if we have looking fragile. A breakdown in trade would lead to higher prices, faster paced inflation which would bring a faster pace of removal of monetary accommodation, and we do not believe that is something that is well priced into the markets at the moment and we see it as a major risk of 2018. Yousef i take you back to 2018 on the shorter term horizon. We have chinas rising interbank rate, and bond trade we see several metrics. How much anxiety are the new interbank rates giving you . Guest we often see rates going higher at this time of the year, but there is Something Else at play, trying to reduce leverage in the economy. We like that there has been a realization that chinas leverage is unsustainable in the longerterm, and that is what we are seeing. We are seeing rates start to pick up, and we think that is likely to continue as we head into next year. That means the cost of capital in china is starting to be more expensive, chinese growth is likely to face more headwinds next year. We expected to grow at a decent pace, probably in the six percent range, but it gives us some comfort rather than stand alongside the actual fact, that rates have moved higher. Fromf i also got to start the i also got to talk with them ifo guests, asking markets are in for a rougher ride in a 2018. Guest i think 2018 a globally, is quite positive. It is going to filter through into a stronger outlook for the middle east and north africa. The region is benefit of, gcc in particular, with Oil Prices Rising up to 65 a barrel and giving governments a lot more confidence to undertake fiscal stimulus. We are not seeing also any fiscal tightening from the u. S. Fed. Across theising region which will have an impact potentially on the nonoil economies. So this region will benefit from higher oil prices, fiscal stimulus, stronger Global Growth momentum and trade. 2018 should be a much better year than we have seen. Yousef that sounds very toitive, we put up a chart show what has been going on with u. S. Equities. Weekly changes in u. S. Stocks, and it tells a story to show what has been going on with u. S. Equities. Of 2017, doesnt it . In terms of global asset management, you say are bullish on india, quite positive on a russia. What would be your key risks, what to avoid. With the usb one of them . Look at those devaluations i think the description that paul gave over the Global Economy as positive, i would say that as well. I would say that continuing growth in the United States is a key ingredient. In otheray underdeveloped markets it makes sense in this late phase of the cycle that european and Japanese Equities would do better, the reality is if a correction equities, will have a lower equities, will have a lower bid so they would correct less. So there is no reason to think the u. S. Economy, blue chips in particular which is a very narrow market, but the u. S. Equity markets will not do well. It seems impossible that they will do bad if other equities globally do well. So i am not negative about the outlook in the u. S. If there was one line that i found that i found positive, what they said was bullish but not hawkish. Goldilocksre the thing pops up, if you do not believe too much in it, then you should be in u. S. Equities. They have the lowest bet, and you would still have more protection than you would bethit in european equities. Where does this leave us in the european equities. Where does this leave us in the european equities. With trepidation around brexit, the ecbs comments over the weekend, european equities lower in contrast to their level peers. As the european story in terms of equities running out of team, perhaps . Guest no, i think this is across the globe. For several years, we have been talking about crisis risks in europe whether it is in italy or greece or the United Kingdom. The brexit issue, i do not see it having a big impact on the global picture, or the outlook for the eurozone. We are still getting the the same confidence in markets like germany, where unemployment is trending lower. It is not as good as the u. S. , but it is still fairly solid. Yousef it is it for this edition of best the Bloomberg Markets middle east. We will be back next week with more coverage. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Idea, ideas sculpture is an incredibly dynamic discipline. It has an endless amount of possibilities. It is important sculpture gets to be seen and is part of the world