GCC's economic future looks bright
Backed by high oil prices, strong government financial balances and a continued wave of public spending on infrastructure projects and social programmes, GCC countries are set to witness further solid economic growth in the next two years, a regional bank said. However, a “policy-driven” cut in oil output by the region’s oil economies will bring about slower economic growth in 2013, the National Bank of Kuwait, or NBK, said in its “GCC Outlook.” Oman may be the region’s fastest growing economy in 2013, knocking Qatar off the top spot it has held for eight years, the report said. “Real gross domestic product growth in the GCC is seen dipping from 5.1 per cent in 2012 to 3.5 per cent in 2013, though the decline is largely due to a policy-driven cut in oil output from Gulf OPEC members,” the bank said. The bank noted that non-oil growth — a better measure of underlying economic performance — will stay close to five per cent, slightly above the average of the previous three years. The International Monetary Fund, or IMF, in a recent report also suggested that the short- to medium-term economic outlook of GCC countries is positive, thanks to rising oil prices and strong external balances.
The IMF report forecast a GDP growth of close to five per cent in 2012 thanks to increased government spending. The bank expects regional crude oil production to stay close to its recent high of 17.2 million barrels per day this year despite a sharp drop in oil prices in the second quarter 2012. This is because Saudi Arabia and other Gulf exporters seek to boost stock levels to guard against non-GCC supply disruptions, the bank said.
Oil prices are assumed to average $110 per barrel this year and fall to $100 in 2013, driven by higher stock levels and a weak global economy. In response, Gulf oil production is expected to ease back next year.
“The risks to the overall growth outlook have nonetheless become more apparent. A long recession or break-up of the eurozone could generate a sharp fall in oil prices, which would weaken Gulf governments’ fiscal positions, undermine confidence and potentially create challenges in financing infrastructure projects,” the bank argued. The eurozone crisis could also damage the prospects for those large corporates undergoing debt restructurings, the bank said. “Even if the eurozone muddles through, the prospect of a major — and sudden — fiscal contraction in the US in 2013 represents a huge risk to the global economy. Under these conditions, we think Gulf non-oil growth would slow, though avoid recession,” the bank said.
Inflation in GCC countries has generally remained low and even decelerated in some countries despite healthy activity levels and a pick-up in money and credit growth, the bank observed. “On a weighted average basis, it stood at three per cent in May. The fall in global food prices of 2011 second-half and soft housing markets in the UAE and Qatar have helped, but core inflation also remains subdued.
Spending by GCC governments surged by 22 per cent last year. Yet the combined GCC budget surplus actually rose to 11 per cent of GDP thanks to a 49 per cent jump in oil revenues, the report said.
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